Crypto contagion deters investors in near term, but fundamentals stay strong

The past six-odd months have been nothing short of a financial soap opera for the cryptocurrency market, with more drama seemingly unfolding every other day. To this point, since the start of May, a growing number of major crypto entities have been tumbling like dominoes, with the trend likely to continue in the near term.

The contagion, for the lack of a better word, was sparked by the collapse of the Terra ecosystem back in May, wherein the project’s associated digital currencies became worthless almost overnight. Following the event, crypto lending platform Celsius was faced with bankruptcy. Then Zipmex, a Singapore-based cryptocurrency exchange, froze all customer withdrawals, a move that was mirrored by crypto financial service provider Babel Finance late last month.

It is worth noting that since December 2021, nearly $2 trillion have been wiped out from the digital asset industry. And, while markets across the board — including equities and commodities — have been severely affected by the prevailing macro-economic climate, the above-stated slew of collapses have definitely had a role to play in the ongoing crypto drain. To this point, Ben Caselin, head of research and strategy for crypto exchange AAX, told Cointelegraph:

“The contagion has played a big part in the recent downturn, but we cannot ignore the wider market conditions and the change in fiscal policy as important factors playing into price. The situation concerning Celcius, Three Arrows Capital but also Terra is expressive of an over-leveraged system unable to withstand severe market stress. This should in the least serve as a wake up call for the industry.”

He went on to add that increasing mass adoption of digital currencies in the future should be done by expanding the scope of crypto beyond its prevailing “sound money narrative.” Caselin highlighted that the market as a whole now needs to take into account and implement financial practices that are sound and sustainable in the long…