Is Crypto Over?

Cryptocurrency enthusiasts had high valuation hopes for their chosen digital currencies – for good reason. Digital currencies saw explosive growth in market capitalization since their introduction as an alternative to traditional fiat currency. The total value of cryptocurrencies reached an all-time high of more than $3 trillion, surpassing the GDP of several developed nations.1

But the crypto market can also be volatile. Last year’s epic crypto collapses and fraud losses rocked the industry, triggering panic selling and $2 trillion in losses. Hackers also managed to steal a record $14 billion in crypto, heightening security concerns in the loosely regulated industry and chilling investment.2

These setbacks, combined with an unsteady post-pandemic global economy, leaves businesses and venture capitalists wondering what's next.

Why did crypto crash?

Matt Maxey, Synovus chief innovation officer, says, “It’s important to fully recognize the cause of each collapse to understand industry implications. “It’s not the concept of cryptocurrency or the technology behind it, or even the efficacy of the coins being held.”

Maxey believes the major driver of the crypto scandals is the human element. “When you study what happened with TerraUSD or FTX, you’ll find a common thread that includes some combination of poor corporate governance, mismanagement, and fraud,” he says.

Characterizing the current state of cryptocurrency as "slightly chaotic," Maxey notes that, despite the setbacks, there is a certain resiliency inherent to the crypto market. It seems a certain amount of frenzied turbulence could just be part of the crypto market’s nature — and, perhaps, its appeal. For example, crypto prices rebounded after the Silicon Valley Bank failure. Bitcoin traded at $22,300 and Ether at $1,600 in March 2023.3

“Crypto might always be at least a little chaotic,” says Maxey.

What does this mean for businesses?

Maxey thinks there are “two sides of the crypto coin.” While buying into crypto might not be a prudent short-term strategy for most businesses, the underlying blockchain technology on which digital currencies are built could transform several industries. Businesses should consider both the short-term and long-term prospects of digital asset investments, as well as the risks involved.

As a business payment tool, cryptocurrencies and other digital assets are still in the growth stage, largely due to regulatory challenges and lack of widespread adoption. Its volatility and value fluctuations also pose significant risks for businesses that accept crypto as payment. However, some companies are still exploring blockchain-based payment systems to improve efficiency and reduce costs of cross-border payments.

Maxey is excited about blockchain technology and sees increased opportunity to reduce friction in business banking processes, making them faster, easier, and more secure. “There's so much we can do with technologies like blockchain and programmable digital tokens,” he says. “We’re eager to see where the industry is headed and will choose the best uses for our customers and associates.”

Is crypto right for your business?

If your business is considering crypto or other digital assets, Maxey suggests you carefully consider the benefits and risks.

1. Understand the regulatory environment.
   Crypto currently has far less regulatory oversight and fewer government protections versus traditional fiat currency. So, it’s important to stay informed as global governments and regulatory bodies develop polices related to the digital currency. Be aware that regulatory decisions can have significant impact on market conditions and crypto valuations.


2. Consider institutional-grade custody and security solutions.
   High crypto valuations increase the likelihood of theft and hacking. Businesses and investors should consider institutional-grade custody and security solutions to minimize exposure. These may include cold storage solutions, multi-signature wallets, and other advanced measures.


3. Look beyond Bitcoin.
   While Bitcoin is the most familiar and popular cryptocurrency, there are many other digital currencies, assets and blockchain projects that may present attractive business opportunities. Research emerging projects and technologies. Always conduct thorough due diligence on companies, founders, and management staff.


4. Be aware of possible disruption.
   Positive or adverse developments in blockchain technology can disrupt a wide range of industries. Assess both short- and long-term implications of investing in or adopting blockchain-based solutions. Understand the advantages and disadvantages of partnering with startups or financing projects that are working to bring blockchain technology to mainstream markets.

Digital currencies still offer high potential, whether businesses want to make or accept payments for goods and services or include them as part of a portfolio. But there are also liabilities. Before deciding, realistically assess your knowledge of digital currency. Consider your company’s goals and objectives. Ask what you hope to accomplish. Will you be prepared to manage upswings and lows in the crypto market? These are just a few considerations.

If you'd like to learn more about cryptocurrency, please complete a short form and a Synovus Treasury & Payment Solutions Consultant will contact you with more details. You can also stop by one of our local branches.