“The crypto market is an orderly market”

The fall in the prices of cryptocurrencies, visible for several months in bitcoin and, consequently, in all virtual currencies, does not really dampen the enthusiasm of investors and specialists of the sector. ” The crypto market is a regular bear market (Editor’s note. A period of falling prices) that stretches for a fairly long time. These stages do not attract a long-term trend even if vigilance remains in order, especially in the wake of the FTX default “says Alexandre Azoulay, CEO of the SGH investment fund, which operates one of the first European funds that has invested in about thirty companies operating on the web3, and more specifically in crypto infrastructure in the United States and France. He gives us his market outlook for the coming years as the industry comes under pressure following the FTX bankruptcy.

Moderate concerns about the downtrend of the market

Of course, the crypto industry should not be considered a market uncorrelated from major macroeconomic and financial trends. » Analyzes Alexandre Azoulay, who claims that « the combined impact of inflation and rising rates imposed by central banks, such as systemic shocks such as the war in Ukraine or the health crisis have strongly contributed to the downward trend of recent months. In mid-September, the publication of the consumer price index (CPI) in the United States, whose growth was stronger than expected, sent a very strong message to international markets, which cryptocurrencies have not escaped. . After the announcement, in 24 hours, BTC and ETH fell by 9 and 6%, respectively, the Cryptonaute platform recalls. Panic episodes, characterized by extreme volatility, already known in the past. In 2018, the market thus plunged by 83% and in 2021, Bitcoin fell below the $30,000 threshold in June and July to rise sharply in November of the same year.

But for the last two years, Bitcoin is no longer de-correlated with the fluctuations of classical assets at the international level, which makes it more permeable to the economic situation and monetary policies. Rising interest rates thus encourage less risky and less volatile investments and penalize others, including cryptocurrencies, making borrowing more expensive and less attractive. “All the signals are orange for investors, but they are still a long way from being red.” The expected rebound in equity markets in 2023, thanks to US inflation under control and a possible end to the war in Ukraine, could boost bitcoin in particular. The bankruptcy of FTX is not systemic, even if it is shocking”, summarizes Alexandre Azoulay.

On November 2, the Fed announced it would raise its key rates by 0.75 basis points, the sixth increase since March, to 4%, while casting doubt on a possible hike to 5% by the start of the year upcoming. ” Observers are eagerly waiting for signs of lower rates or an ebb of inflation before turning more massively into crypto, it’s a reasonable and logical trend “, emphasizes Alexandre Azoulay. But the correlation between falling bitcoin prices and rising rates is not yet so obvious, Alexandre Azoulay underlines: It is also possible, but less likely, to consider that the prospect of a recession or a sustained decline in the dollar could give cryptocurrencies, in particular bitcoin, safe-haven status. “.

Western and Asian institutional investors have felt the need

From a global point of view, virtual currencies are gaining legitimacy and are already included in the strategies of financial players. ” There are two positive trends. The first is the growing institutionalization of cryptocurrencies, with an increasingly strong positioning of traditional financial players. The second is the regulations that are being built up little by little, even if you have to be wary of an overly strict framework. notes Alexandre Azoulay. A recent report from Cointelegraph The research, which conducted a survey of 84 leading investors based in the United States, Europe and Asia, showed that institutional investors had an increasingly pronounced inclination towards the crypto market. 43% of them own digital assets, while 19% want to position themselves there in the next 12 months. More broadly, the average cryptocurrency represents, among respondents, 3.3% of assets under management with, for some of them, an exposure rate of more than 50%. Logically, Bitcoin is the most represented virtual asset, ahead of Etherum, which is experiencing continuous growth. ” Other virtual currencies have less interest or are almost perceived as start-ups, without a proven economic model, whose development is monitored, but future success is still uncertain. “, explains Alexandre Azoulay.

Every year, the list of institutional investors engaging in virtual currencies grows with, among the most important, BlackRock, Bridgewater Associates or Goldman Sachs. ” This trend should continue in the long term, despite some still visible brakes, such as volatility, cyber security fears or the environmental burden of mining. Despite this, the market is attractive and institutional investors in which we are shareholders, such as Digital Currency Group, which is the Blackrock of digital assets, remain confident about the prospect of a medium-term recovery. “, explains Alexandre Azoulay.

In Europe, ambitious regulations

At the regulatory level, Europe is a pioneer, particularly inspired by the French case. Thus, two framework texts were formalized at the beginning of the summer. Henceforth, with the MiCA regulation, which defines several categories of cryptoassets and their supervisory framework, “digital asset providers” will have to be authorized to operate on EU territory, with certain restrictions, notably in terms of equity. As for the TFR regulation, it now integrates crypto-asset transfers with transparency rules regarding the information accompanying a fund transfer.

Specifically, this regulation already requires the collection of data for the parties involved in the transactions, with a mandatory condition for the competent authorities in case of suspicions of money laundering or terrorist financing. ” The whole issue of regulatory enforcement on a European scale rests on a strict balance between the necessary exit from the “law of the jungle” that has reigned for a long time in this market and the fact of not going too far at the risk of limiting digital development. ASSET “, emphasizes Alexandre Azoulay. ” In the current state, the existing regulations should not interfere too much in the growth of the market, even, on the contrary, favor its development. The failure of FTX may set us back 3 to 4 years, but it may also project us several years ahead if investors have the objective tools to distinguish a scam (editor’s note. A platform used for scam purposes) from a solid platform and arranged. Our funds have always invested in regulated projects, such as Coinhouse, the first French PSAN, and we are creating significant value in our funds, with no losses or defaults to date. “says the CEO of SGH.

The market remains solid in the face of exogenous shocks

Observers and analysts want to be reassuring about the future of the sector, which must increasingly follow the evolution of the international economy. ” Uncertainty remains associated with the crypto market. But the sector now has plenty of bounce back from past downturns, which remains reassuring. Paradoxically, we see bear markets as favorable phases for value creation concludes Alexandre Azoulay.

In the French market, a strong political will to support innovation is taking shape, with some notable successes. Two major global players, Binance and Crypto.com, have chosen Paris to establish themselves in the European market, and the startup ecosystem in this sector is growing month by month. A trend that confirms the will of the French government: We want to make the European Union the leading economic area in the world in terms of structuring and organizing the crypto-asset market. And we want France to be the European hub of the crypto-asset ecosystem within it. “, explained Bruno Le Maire, Minister of Economy and Finance, last October.

Leave a Comment