• Team Sygnum

Why the market is forcing some crypto business models to evolve

The prevailing bear market has highlighted that some sectors of the crypto market need to evolve their business models in order to survive. Fundamentals overall, however, are supportive for strong medium-term performance.


This is part of our Crypto market update Q4. Download the report here.

Not since the second half of 2011  when the total crypto market capitalization was below USD 100 million,  has there been a worse semi-annual period in the crypto market, which is down 66.7% in the first half of 2022. Since then, the market has been moving sideways, held back by pervasive negative sentiment.


The vast majority of the negative performance occurred in the second quarter, largely for crypto-market specific reasons. Contrary to the narrative that the global macro environment necessitates the selling of crypto assets, the market only fell 7.8% in the first quarter. However, after the collapse of Terra and the daisy-chain failures of centralised crypto lenders, crypto asset prices dropped significantly.


Despite short-term knee-jerk correlation with major asset classes, the big moves in crypto are still primarily driven by idiosyncratic, crypto-market-specific developments, both on the downside and the upside.



The crypto market failures over the last few months were mainly caused by centralised entities (private companies) active in the crypto market that were either unregulated or loosely regulated, or in some cases, that misled their regulator. The surprise in the centralised finance (CeFi) sector: it became apparent that several CeFi entities had very poor risk management and, in some cases, questionable business practices.


Decentralised finance (DeFi) lending platforms, on the other hand, continued operating as normal, demonstrating the power of transparency and of decentralised governance.

The vulnerabilities of certain experimental business models such as play-to-earn, early adopter incentives and algorithmic stablecoins also contributed to recent price drops this year. Experimentation with these models is both legitimate and useful, and not all of the criticism is reasonable.


Business practices that reward early adopters to get to critical mass quickly are legitimate and often necessary in the crypto sector, where network effects are critical to success. However, projects need to deliver and demonstrate genuine value to users beyond incentives, and they need a reasonable plan for phasing them out. Without this, greed can ruin legitimate projects.


Another interesting feature of the financial markets year-to-date has been the slow “flight to quality” flows that normally occur in unstable macro environments. Not only did bonds fail to protect the 40/60 portfolios, but gold is down almost 20% from its recent high, and silver is down more than 25%. The Swiss franc has weakened 5–10% versus the dollar year-to-date (although it is outperforming the pound, euro and yen). The safe-haven effect of the Bitcoin network as a “flight to quality” effect has also been weak.

In an environment of recession coupled with inflation, investing in organic growth trends offers the best opportunities. With the Fed likely lurching between fighting inflation and fighting the recession, and underlying structural problems remaining, crypto will likely be a strong outperformer. However, a sustainable rally would need a “flight to growth” narrative emerging at a macro level. Certain sectors of the crypto market would also need to refocus on crypto-specific developments, regain trust or adapt their business models.


A number of fundamentals can be expected to support the overall market. These include continued and largely recession-proof crypto growth trends, very cheap valuations, the undiminished build-up of large financial institutions’ crypto operations, a broadly supportive approach by regulators, and further innovation driven by both plentiful venture capital and the pressures of the recent months.

Disclaimer This document is purely for educational purposes and has been issued by Sygnum Group. It is not intended for distribution, publication, or use in any jurisdiction where such distribution, publication, or use would be unlawful, nor is it aimed at any person or entity to whom it would be unlawful to address such a marketing communication. It does not constitute an offer or a recommendation to subscribe, purchase, sell or hold any security or financial instrument. It contains the opinions of Sygnum Group, as at the date of issue. These opinions and the information contained herein do not take into account an individual‘s specific circumstances, objectives, or needs. No representation is made that any investment or strategy is suitable or appropriate to individual circumstances or that any investment or strategy constitutes personalized investment advice to any investor. Therefore, you must verify the above and all other information provided in the document or otherwise review it with your external advisors. Some investment products and services, including custody, may be subject to legal restrictions or may not be available worldwide on an unrestricted basis. The information and analysis contained herein are based on sources considered as reliable. Sygnum Group uses its best efforts to ensure the timeliness, accuracy, and comprehensiveness of the information contained in this document. Nevertheless, all information indicated herein may change without notice.



53 views