The End—or Beginning—of Crypto?

It’s one of the biggest—and fastest—investment wipeouts in recent memory. In the span of a week, one of the biggest exchanges catering to cryptocurrency enthusiasts went from an industry leader valued at more than $30 billion to bankruptcy court—with an $8 billion hole in its balance sheet and questions about where customer money went. Both customers and investors are wondering if they will ever recoup any of their money.

For leaders interested in the still-fledging industry of decentralized finance, the wipeout underscored the risks on the road to a potentially $10 trillion ecosystem of government-free monetary transactions, a road that ultimately could lead to nowhere. “It’s a multi-year setback for crypto,” says Deepali Vyas, Korn Ferry’s global head of its FinTech, Payments and Crypto practice.

Still, even as finance firms, investors, regulators, and investigators worldwide sift through what actually happened, experts say that there may be opportunities for crypto leaders and the underlying blockchain technology as a whole. “Crypto is only a piece of the blockchain world and blockchain is still an amazing next generation solution unfolding quickly every day,” says Alan Guarino, Korn Ferry vice chairman and coleader of the firm’s Board & CEO Services practice.

At the moment, it might not feel that way. Cryptocurrencies are the most visible use of blockchain, a decentralized, public digital ledger that is used to record transactions across many computers. It was only about a year ago when many leaders started seriously considering whether cryptocurrencies had a place in their organizations. In November 2021, the value of bitcoin, the largest of the currencies, hit an all-time high of nearly $69,000. Meanwhile, thousands of people left technology and conventional finance roles to jump into decentralized finance.

But the value of cryptocurrencies, as a group, had been declining over the last year. When the collapsed crypto exchange filed for bankruptcy last week, the value of bitcoin was down about 75% from its all-time high, at around $16,000. The value of other digital tokens have fallen even farther. The brokerage bankruptcy mirrors many collapses of the Internet bubble burst in 2000. The fall in valuations laid bare which organizations had strong business models, and which did not. And tens of thousands of people lost their jobs, while investors lost hundreds of billions of dollars.

This crypto-related bankruptcy and resulting investigations almost certainly will make regulators more vigilant, Vyas says. The US has lagged behind Asia and Europe in developing significant guidelines around cryptocurrencies.

Indeed, experts say it’s the collapse that actually might create opportunities within the industry, particularly for lawyers, auditors, and compliance officers familiar with the asset class. Vyas sees parallels between the fallout and several cases of interest rate and currency manipulation in the mid 2010s. Those cases brought about a slew of new rules around who can trade what and when. “There’s an opportunity in compliance and risk to get this right,” Vyas says. The industry almost certainly will need better frameworks around human resources.

The good news, if there is any, coming out of the collapse is that it doesn’t have anything to do with the underlying blockchain technology. “The people invested in blockchain technology should double down,” she says.

Some of the most promising emerging applications of blockchain may be in real estate and healthcare. In healthcare, the blockchain offers potential for the digitization and portability of healthcare records. Meanwhile, blockchain could potentially give real estate investors a chance to purchase tokens backed by the underlying value of a physical building (whether a cryptocurrency has any underlying value has always been a fierce debate). It also could make property transactions considerably more efficient, as home buyers and sellers could easily track deeds, liens, and other important property information in one place.