Crypto Analytics: Navigating the Data
[authors: Ken Feinstein, Boris Richard, J.P. Brennan, and Ryan Gaudet]
Introduction
Fortune favors the brave. That’s what many have come to believe as cryptocurrency has soared into mainstream consciousness over these past two years. With cryptocurrency companies spending over $2 billion on advertising via Super Bowl commercials, celebrity endorsements, and even arena purchases (thanks for the memories, Staples Center), it’s no wonder that more and more Americans and institutions are adopting cryptocurrency at a faster rate.
Morgan Stanley, Goldman Sachs, and Citigroup have invested more than $2 billion in crypto and blockchain companies since August 2021. Fidelity now offers Bitcoin as part of their 401k plans. Blackrock enabled its Aladdin platform for institutional investors to use Coinbase Prime to trade, prime broker, and custody cryptocurrencies as part of the overall portfolio management approach. Companies such as Tesla, MicroStrategy, and Square have invested their reserves directly into Bitcoin. Some countries are investing in crypto as reserves alongside gold. Cryptocurrency is ingrained in our everyday lives, whether we believe in its staying power or not.
While cryptocurrency has become more common it has not lost its volatility. This article focuses on the risks of the rapidly growing cryptocurrency marketplace and what tools and capabilities are needed to protect companies from future crises that may emerge.
Understanding Crypto Complexities
As of November 2022, the overall cryptocurrency market has lost $2 trillion in just the past year (See: figure 1). Massive destabilizations to stablecoins – which are coins linked to a commodity or currency maintaining a consistent price – have collapsed entire coin ecosystems erasing billions in the matter of days. Extreme volatility and excessive leverage, as well as plain poor investment decisions, compounded by secrecy and lack of oversight, have led to the bankruptcies of crypto exchanges (e.g., FTX) and crypto hedge funds (e.g., Three Arrows Capital), and caused collateral damage to investment managers (e.g., Voyager Digital), OTC broker-dealers (e.g., Genesis Trading), and lending companies (e.g., Celsius Network and BlockFi).
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