1. Analysis
June 15, 2022

“Market booms and busts are not uncommon”: Binance bullish amidst crypto crash

Binance remains confident in the cryptocurrency industry despite the ongoing crypto crash that has seen investors lose billions of dollars

By Eric Johansson

Binance is remaining confident in the future of the cryptocurrency industry, despite the ongoing crypto crash. The world’s arguably biggest cryptocurrency exchange tells Verdict that it is continuing to see “positive indicators” under the hood despite the dramatic downturn over the past few weeks.

“Market booms and busts are not uncommon and are part and parcel of financial market cycles,” a Binance spokesperson says. “The market downturn will weed out excesses and the reset in valuations back to more sustainable levels can be seen as positive. Firms that have a healthy balance sheet will be able to withstand the market downturn better as they continue to improve their products, build their business, and emerge out of this stronger.”

In other words: Binance believes the crypto crash will be good for the industry and will weed out players with little to offer. The sentiment has become ubiquitous across the the cryptocurrency industry as the crisis has worsened since the start of the year.

The bullishness may seem out of place in the face of bitcoin hovering just above the $20,000 line, crypto darlings like Coinbase announcing mass-layoffs, and both Binance and Celsius having halted withdrawals over the past few days. But rather than adopting a lackadaisical approach to the crypto crash, Binance argues that there are still reasons to be bullish about the digital asset sector.

“Total cryptocurrency market capitalisation has been declining over the last few weeks, exhibiting traits of a market contraction,” the Binance spokesperson says. “However, market capitalisation and token prices alone do not show the full picture of the health of the overall ecosystem. Looking under the hood, while activity has slowed down, we continue to see positive indicators – eg. healthy amount of funds raised, strong institutional interest, and increased utility of the ecosystem.”

Moreover, Binance argues that the downturn isn’t entirely caused by the sky-high valuations cryptocurrencies like bitcoin and ethereum have enjoyed over the past few years.

“The macro-environment has been challenging for financial assets,” the spokesperson says. “To name a few factors – interest rate hikes, tapering of bond purchases, and political turmoil have contributed to overall risk-off sentiments in the market. This has affected not just cryptocurrency but also traditional assets such as equities and fixed income.”

Binance not alone in being bullish about the crypto crash

The crypto crash follows an unprecedented period of growth for the industry. Bitcoin reached an all-time high at over $68,000 in November 2021, as did several other types of blockchain dosh.

Incumbent players have congregated to the industry as digital assets reached new record levels during the pandemic. PayPal, Revolut, Robinhood and JP Morgan are just some of the traditional financial services companies that have launched crypto services over the past two years.

Investment into industry initiatives surged over the course of Covid-19. Venture capital investors injected $3.3bn into the industry across 532 deals in 2020, according to data from research and analytics firm GlobalData. Those numbers jumped to $26.4bn raised across 1,010 deals in 2021. So far in in 2022, VCs has injected $11.9bn into the industry across 613 deals.

Growth like this is one of the reasons why Binance is not alone in being bullish despite the crypto crash. Most of the market stakeholders Verdict has spoken with share the sentiment that the implosion of the market will be bloody in the short run but that it will leave the industry stronger than ever.

"Crypto is still considered a risk-on asset, and as traditional equities have been pummelled, the downturn among crypto has correlated with the rest of the market," Alexander Höptner, CEO of cryptocurrency trading platform BitMEX, tells Verdict.

"We are learning very important lessons about the crypto market in the meantime, however. The crypto market is a truly free market, and in free markets there are no bailouts; because of this, some projects fail and only the best ideas survive. I would call this a correction rather than a crash, because the market – which is still very young – is undergoing a natural pendulum swing."

It's not just the companies whose entire business model relies on the continuous survival of the cryptosphere that are preaching the second, third and fourth coming of blockchain money.

This week, German neobank N26's CEO revealed in an interview with Sifted that it is building a crypto trading platform that it planning on launching "in the next couple of weeks."

Similarly, payment processing firm Moneygram has announced that it has integrated USDC, a dollar-pegged stablecoin, in order to use it as a settlement asset for its cash to crypto and vice-versa programme.

GlobalData is the parent company of Verdict and its sister publications.