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Crypto Industry Hopes to Shakeout Bad Players in the Aftermath of Recent Crash

Executives in the crypto industries believe that the recent slump in the digital coin market should help get rid of “bad actors.”

A sell-off in equities and the crash of algorithmic stablecoin terraUSD and its associated token Luna have wiped billions of dollars from the crypto market in recent weeks. Read More

“We’re in the midst of a bear market.” And I believe that is a good thing. At the World Economic Forum in Davos, Switzerland, Bertrand Perez, CEO of the Web3 Foundation, told CNBC. “It is fantastic since it will clear the people who were there for the wrong reasons.”

“During… bull markets, when everything is green, no one considers building; everyone focuses on making a fortune,” he added.

According to Mihailo Bjelic, co-founder of blockchain business Polygon, the cryptocurrency sell-off is “essential.”

′′The market, in my opinion, has become a little bit illogical, or perhaps a little bit reckless to a degree. And when those instances arise, [a] correction is usually required, which is beneficial at the end of the day,” Bjelic explained.

Crypto is Here to Stay

A broader slump in stock markets, particularly the technology sector, spurred a sell-off in key cryptocurrencies like Bitcoin and Ether. The decrease was exacerbated by the terraUSD stablecoin’s 1 USD peg loss.

According to Brett Harrison, head of cryptocurrency exchange FTX U.S., hedge funds have been becoming involved in the cryptocurrency market and were a main cause of the recent sell-off.

He claims that the downturn in risk assets, such as stocks, is hitting cryptocurrencies more than in the past since there is more institutional capital in the market.

“If people want to sell assets, crypto will be on the list,” Harrison said.

Ripple’s CEO, Brad Garlinghouse, urged investors to think long-term.

“Bitcoin was around 8,000 USD roughly two years ago,” says the author. It is now at 30,000. So there was a crash, and a trillion dollars vanished. But when you look at the long-term patterns, I believe you can see that crypto is here to stay,” asserted Garlinghouse.

The Outlook

After nearly nine weeks of negative returns, cryptocurrency traders are still on the defensive. BTC is expected to drop 27% this month. However, it is still up 10% from its previous extreme low of 25,840 USD on 12th May.

The cryptocurrency is still down 40% this year, compared to a 13% decrease in the S&P 500 and a 22% drop in the Nasdaq 100 during the same time. All speculative assets have had a difficult year so far.

Prices may, however, stabilize in the short term. “Over the past few weeks, there has been a lot of short selling, which could lead to a short squeeze in the coming weeks. Rebalancing flows at the end of the month may also be beneficial,” wrote David Duong, the head of institutional research at Coinbase, in a newsletter.

MRB Partners, a worldwide investment research organization, predicts a rebound in equities markets if global growth conditions remain stable on the macro front.

The company is “assuming that interest rate expectations and bond yields remain stable for a time, which is likely as inflation stalls, in the United States and globally. In turn, central banks are likely to fortify their newfound hawkishness for a time,” stated MRB.

If the significant correlation between the two assets remains intact, a short-term rise in equities might be a tailwind for crypto. In contrast, as risk-off sentiment dominates, the decrease in cryptos may suggest a limited upside in stocks.