Crypto Is Back, but Is It Here To Stay?

Blockchain technologies and cryptocurrencies have polarized investors and financial markets for years. Is crypto the longest-running financial bubble in history, or is it here to stay? What would it take for crypto to become an actual asset class?

The boom, bust and resurgence of Bitcoin, Ethereum, Dogecoin and other cryptos witnessed over the last several years may provide some insight.

By 2018, blockchain technologies and cryptocurrencies had become the darlings of venture capital, with proponents championing a nascent technology that would forever change financial transactions. The deal value on venture investment approached $1 billion in 2018, and then surged to over $43.5 billion in 2022.

But in late 2022, the so-called Crypto Winter blew in as a series of chilling events rocked the digital currency world: Hedge fund Three Arrows Capital, which largely traded in crypto, filed for bankruptcy and liquidated. Multiple crypto exchanges failed, most notably FTX, which went into bankruptcy amid mismanagement allegations against founder Sam Bankman-Fried. And Binance founder Changpeng Zhao was indicted and later convicted of violating anti-money laundering laws.

All of this, along with two bank failures (Silvergate and Signature) partially due to exposure to crypto financing, prompted regulators to establish greater controls over crypto markets.

Since then, crypto enthusiasts have been regaining confidence, as witnessed by Bitcoin recently reaching all-time highs. Perhaps the Crypto Winter wasn’t a death knell, but a reset, much like what happened when the dot.com bubble burst in 2000. The internet didn’t vanish into history. Web-based companies with strong business models—like Amazon—survived and flourished. New companies were launched, like Stripe, which facilitated the online payments infrastructure that has allowed ecommerce to explode.

Could we now be seeing a similar reformation in blockchain and cryptocurrencies?

In January, the Security and Exchange Commission approved the first Bitcoin ETF, allowing for trading and ownership of crypto assets on regulated exchanges. Grayscale, Franklin Templeton and BlackRock are among the many issuers.

Uses for blockchain are growing as well. One area is smart contracts, which incorporate contract terms and business logic into self-executing code. Industry leaders such as Walmart and Home Depot are currently using smart contracts on the blockchain to help manage supply chains.