Choppy pricing among cryptocurrencies does not spell the end of the nascent digital currency market, according to investment bank Citi.
Despite recent price volatility, analysts still spy opportunities to invest regardless of the prospect of greater regulatory oversight in the largely unregulated crypto market.
“Tentative evidence suggests a reduction in trading volumes and futures positions but not wholesale declines in investor interest in the space,” Citi said in an analyst note on Wednesday.
Due to the nascency of digital assets, the crypto market remains largely unregulated, but regulators in the US and the UK are planning to step in and provide greater protection for investors, which could provide much-needed clarity.
In the US, senators have proposed what is expected to be the biggest Bitcoin bill in history.
The bill would give the Commodity Futures Trading Commission control to regulate cryptocurrencies, which are currently traded as commodities. Under the policy proposals, the US Securities and Exchange Commission would oversee the regulation of coins deemed as securities, but small transactions of less than $200 would be exempt from tax.
The move would require stablecoins to be “100% backed”, said Marcus Sotiriou, an analyst at digital asset broker GlobalBlock, who suggests it will “provide confidence to many investors”.
“Concerns around stablecoins following TerraUSD’s collapse led to outflows from Tether (USDT), the largest stablecoin, and most likely exacerbated crypto price declines,” Citi said in the analyst note on Wednesday.
“We find trading volumes and search interest spiking around the peak of stablecoin woes but subsequently mean-reverting.”
Former Financial Conduct Authority regulator Charles Randell said last month while speaking at the Centre for Commercial Law Studies at Queen Mary University in London that stablecoins, “only if they are strongly regulated to stay truly stable – may have the potential to reduce costs and frictions in certain types of payment transaction, and to challenge the very strong position occupied by a small number of players in the payments market.”
Investment bank Citi said that cryptocurrencies were “below their late 2021 peak” and that “futures open interest has declined”, but that it “is recovering”. In recent days, Citi said exchange-traded funds have seen new "inflows”.
The UK government has also recently announced that it will consult on a regulatory regime for the crypto market, which would regulate the trading of tokens like Bitcoin.
“There are no consumer protections for those who buy any cryptoassets and NFTs, and they are not FSCS protected. As a result, if you buy cryptoassets you should be prepared to lose all the money you invest,” the FCA said in a statement last month.
UK marketers of crypto assets currently have to stick to guidelines set out by the Advertising Standards Authority and the FCA said the advertising authority has investigated “multiple adverts for cryptocurrencies which did not make it clear that the product was not regulated or protected in the UK”.
However, offering renewed confidence in the emerging asset, hedge fund Citadel Securities is building a new crypto trading system for digital assets, backed by Fidelity, which plans to hire 110 blockchain specialists by the end of the year to expand beyond Bitcoin services.