Crypto’s big moves in 2021 led some investors to believe it could provide protection against inflation – but that’s now in doubt.

Cryptocurrency prices have been crashing this year, with the digital currency market proving vulnerable to the global economy’s wider problems. The last few weeks in the cryptocurrency industry have been nothing short of chaotic.

As the industry grew at breakneck speed in 2020 and 2021, moving quickly on extremely lucrative opportunities was prioritized over operational best practices, leading to what experts in the industry call a “crypto winter”.

According to the Word Economic Forum, the signs are everywhere – such as the failure of the TerraUSD crypto project in May 2022, followed by cryptocurrency lending platform Celsius Network halting withdrawals, which prompted a sell-off that pushed Bitcoin to a 17-month low. Meanwhile, crypto exchanges Coinbase and Gemini have announced job losses – Coinbase will cut 18% of its workforce, while Gemini’s bosses have warned of tough times ahead.
Contributing to the crypto winter are factors such as high inflation, rising interest rates and the financial turmoil following Russia’s invasion of Ukraine. Crypto markets had soared in late 2020 and in 2021, partly because the US Federal Reserve was pumping so much money into markets in response to the COVID-19 crisis. But with central banks tightening monetary policy, and liquidity pulled from the markets, speculative assets such as cryptocurrencies are hit the hardest.

Reality checks

Reality has set in and it’s time to get back to basics, according to Fireblocks CEO Michael Shaulov.

Valued at US$8 billion with its APAC HQ in Singapore, Fireblocks was born out of the last crypto winter. Shaulov is seeing similar pain points and challenges faced by crypto businesses today.

As we trudge through the current bear market, Shaulov shares some learnings for crypto companies and digital asset operators to get through the storm:

  • When it comes to counterparties, risks may be low, but they’re never zero: Whether you’re borrowing, lending, or trading with a counterparty, review your settlement practices so that they’re instant and immediate.
  • Don’t let others’ problems become your problems: It is 100% certain that regulations are coming and anybody can be shut down overnight. Be in control and make sure your assets are not on someone else’s balance sheet or wallet.
  • Maximize for security so you can focus on your core competencies: Companies need to do more with less. In order to do so, a little bit more work needs to be done upfront such as eliminating single points of failure and setting up policies and workflow. This allows you to focus on your core competencies while remaining agile and react quickly to headwinds.