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Cryptocurrencies experienced significant depreciation in 2021, with the total market capitalisation of all cryptocurrencies dropping from a peak of around USD 2.5tn in May to around USD 1.3tn by the end of the year, according to data from CoinMarketCap. This represented a decrease of approximately 48% in market capitalisation from the peak in May. By December 2022, the Terra/Luna algorithmic stablecoin, cryptocurrency exchange FTX and crypto mining company Core Scientific collapsed or were bankrupt, marking the end of an annus horribilis for the burgeoning cryptoassets industry.

Understandably, investor confidence was dented by these events. At the level of markets and trading, investment banks reduced their exposure to cryptocurrencies by 46% in 2022, according to the findings of a December 2022 Bank for International Settlements survey of 126 institutions.

Crucially, the BIS survey found that, of the 17 banks providing crypto custody services for institutional investor clients such as asset managers or hedge funds, total prudential cryptoassets exposure in 2022 amounted to EUR 2.9bn with only EUR 1bn held under custody. Given that there are only two ways to trade crypto – hold assets on an exchange or hold a credit line with dealers or market-makers – the fact that banks are currently only willing to hold less than 1% of the market’s capitalisation in safe harbour speaks ill of the asset class’s future.

To restore banking industry and institutional investor confidence in the viability of the cryptoassets marketplace and its wide variety of products, GreySpark Partners believes that wider adoption of the products is predicated on four conditions:

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