Cryptocurrencies: here for good despite a 62% drop in twelve months

Even though the total value of cryptocurrencies has taken a nosedive of 62% this year to flirt with $881 billion, this new asset class is starting to take hold despite a tumultuous year.

Cryptocurrencies: here for good despite a 62% drop in twelve months

Even though the total value of cryptocurrencies has taken a nosedive of 62% this year to flirt with $881 billion, this new asset class is starting to take hold despite a tumultuous year.

• Read also: Crypto: the ex-boss of FTX will be extradited immediately

• To read also: The ex-CEO of Celsius would have withdrawn $ 10 million

"It's the deflation of a bull market that has lasted since 2020. It's a return to earth," summarizes Martin Lalonde, president and portfolio manager of Rivemont.

At its highest, in November 2021, the valuation of cryptocurrencies exceeded 3 trillion, while as of December 31, 2021, its value had melted to $2.3 trillion. They are worth $881 billion today, he notes.

"It's a tough wake up call," agrees Ryan Tomicic, a partner at the BLG law firm.

“The promises of interest and return on investment of 20%, 30%, 40% or 50% without risk, it was not reality”, he continues.

Lack of supervision

For Charlaine Bouchard, holder of the Research Chair in Smart Contracts and Blockchain, the housework has been done. The industry will recover.

“The problem is fraud. It’s not the technology,” analyzes the Université Laval professor.

“Cryptos are here to stay. What is missing is the framework,” she says.

According to Alexandre F. Roch, professor of finance at UQAM's School of Management Sciences, we can speak of "the bursting of the speculative bubble", even if bitcoin is still worth $23,000.

“We saw with Celsius the notion of “bank panic” that we had not seen for decades. As soon as there is a rumor, whether it is true or not, people want to withdraw their money, ”he observes.

As a result, exchanges such as Celsius, FTX and even Binance had to suspend their withdrawals in turn, which put investors off.

"When you transfer your funds abroad, don't expect all the protections we have at home," adds Alexandre F. Roch.

Like in 1933?

According to Louis Roy, partner at Raymond Chabot Grant Thornton and founder of their digital practice Catallaxy, 2022 felt like the 1930s.

“What happened this year is no different from the cases of 1933 when there were the stock market investment rules,” he observes.

"There is a lack of gray hair in there: governance, internal controls, being more calm in decisions," concludes the man philosophically.

The Autorité des marchés financiers (AMF) gives many tips on its website to avoid being victims of fraud related to crypto-assets.

Many scandals have shaken the confidence of investors in the cryptocurrency world over the past year, such as the brutal fall of Celsius, which was in the good graces of the Caisse de depot et placement du Québec (CDPQ).

$200 million. This is the amount that the Caisse de depot et placement du Québec expects to lose on the Celsius cryptocurrency platform, which nevertheless had "a solid management team that places transparency and customer protection at the heart of its activities. “, in the words of the first VP and chief technology officer of the CDPQ, Alexandre Synnett, in October 2021. Then, Le Journal had revealed that Celsius was under the magnifying glass of the Autorité des marchés financiers (AMF), given “the elements raised by a number of regulators in the United States”.

A cascade of scandals had subsequently splashed the firm. Allegations of Ponzi fraud, the arrest of its chief financial officer, data leaks... the cryptocurrency platform with juicy interest rates of more than 10% has suffered a violent fall. Last June, the accounts of 1.7 million customers were blocked, and since then they have never been able to withdraw their marbles. After the company went bankrupt last July, its founder and former CEO, Alex Mashinsky, who liked to wear a T-shirt that read: "Banks are not your friends", to taunt traditional financial institutions , is less talkative than before on social networks. Finally, remember that last month, Le Journal reported that the boss responsible for the Caisse's failed investment in Celsius Network, Alexandre Synnett, is the one who had the biggest increase in compensation in 2021. In addition to his salary of $370,000, he had performance bonuses of $900,000, for a total of $1.27 million, or 32.9% more than in 2020.

His fortune was around $23 billion last September, according to Forbes. The young leader with the tousled black mane made the front page of business magazines. He was praised as an entrepreneur. Some even saw him as the next Warren Buffett, no less. But last November, the dream turned into a nightmare. 30-year-old multi-billionaire Sam Bankman-Fried's second-largest exchange, FTX, was bankrupt and its boss charged with fraud and embezzlement. The American financial markets watchdog, the Securities and Exchange Commission (SEC), even went so far as to accuse him of having “built a house of cards based on deception”.

In total, the Commodity Futures Trading Commission (CFTC) estimates that more than US$8 billion of FTX client accounts were embezzled. Arrested in the tax haven of the Bahamas, Sam Bankman-Fried, a Democratic donor, was quickly extradited to the United States, where he had to pay a bond of US$250 million to be released pending trial. If the Caisse de dépôt et placement du Québec (CDPQ) had not invested in the controversial platform, this is not the case, in the province of Doug Ford, of the Ontario Teachers' Pension Plan (the fund Teachers), which entrusted US$75 million. "Recent reports suggest potential fraud being conducted at FTX, which is deeply concerning to all parties," Teachers said last month.