Crypto issues 'not just idiosyncratic' to the space, industry expert argues

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Crypto expert on where the industry is headed

Ava Labs President John Wu argues that in the last couple of years, the crypto industry has shown ‘a lot of overlap within traditional finance.’

Ava Labs President John Wu argued Monday that many of the issues associated with the crypto market selloff were macro-oriented, and other issues that came into play were "not just idiosyncratic" to the space. 

The cryptocurrency expert explained those issues include unsecured lending, layering of leverage and lack of transparency, which also "existed in traditional finance."

"So at this point, I think the idiosyncratic stuff to crypto has actually played mostly out," Wu said on "Mornings with Maria" Monday, adding that where it goes from here depends on what happens with growth stocks, internet companies and where the draining of liquidity is going to take hold in terms of the macro picture. 

Wu provided the insight as bitcoin was trading lower around the $20,400 level, down from its all-time high of over $68,000 reached in November 2021. Ethereum was also trading lower on Monday, at around $1,143.

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Ticker Security Last Change Change %
COIN COINBASE GLOBAL INC. 54.76 -5.53 -9.17%
BITQ EXCHANGE TRADED CONCEPTS TRUST BITWISE CRYPTO INNOVATORS E 6.18 -0.49 -7.35%

Bitcoin, the leading cryptocurrency, has taken a beating in 2022, continuing a decline that started in November last year. For most of the year, the value remained within touching distance of $40,000, but two large drops – one at the beginning of May and one in June – brought the currency to less than one-third of that November high.

Bitcoin and other cryptocurrencies have had some rough weeks in anticipation of and following rate hikes by the Federal Reserve as the central bank seeks to combat soaring inflation, which is at a high not seen in four decades.

The expectation now is that the Fed will continue to take aggressive action to try and curb inflation, which has reduced investor appetite to hold assets perceived as higher risk.

This past year, tighter monetary policy has impacted both stocks and cryptocurrencies.

Last week, Reuters reported that U.S. crypto lender Voyager Digital said the company had filed for bankruptcy, becoming another casualty of the dramatic drop in prices that has rattled the sector.

Gemini founders Cameron and Tyler Winklevoss have warned that the crypto industry is entering a "crypto winter," described as a "contraction phase settling into a period of stasis." The cryptocurrency exchange recently cuts its staff by 10%, citing "turbulent market conditions that are likely to persist for some time."

Ava Labs President John Wu weighs in on recent crypto volatility, arguing that issues that have arised are not just specific to the space. (Photo Illustration by Chesnot/Getty Images / Getty Images)

U.S. Treasury Secretary Janet Yellen told a House committee hearing in May that the sharp drop in crypto markets highlighted the need for additional federal regulation to respond to the wave of speculative investment in the currency whose secrecy is a major part of its attraction.

On Friday, Federal Reserve Vice Chair Lael Brainard said the industry needs strong regulation, noting that recent turmoil has shown cryptocurrencies face the same risks as the traditional finance sector.

"As we consider how to address the potential future financial stability risks of the evolving crypto financial system, it is important to start with strong basic regulatory foundations," she said. 

Wu noted Monday that in the last few years, the crypto industry has shown "a lot of overlap within traditional finance." 

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He argued that in the short term the space has "become more correlated." 

"But there is a whole other world of cryptocurrencies where utility is happening," Wu continued.

"My calls, as an operator, have only increased for financial services and enterprises to figure out how to use blockchain and crypto to enable their businesses and do better jobs for their businesses and become more productive," he added. 

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A recent survey noted that investors expect crypto’s drop to get worse. 

According to the latest Bloomberg MLIV Pulse survey, Bitcoin is more likely to tumble to $10,000 than it is to rally back to $30,000, according to 60% of the nearly 1,000 investors polled.

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