Alexandre Azoulay (SGH): “Cryptocurrency market is a permanent bear market”

The fall in cryptocurrency prices seen over the course of several months for bitcoin and by extension all virtual currencies does not really dampen the enthusiasm of investors and professionals in the sector. “Cryptocurrency market is used for bear markets (editor’s note. The period of falling prices), which last more or less a long time. These milestones do not reflect a long-term trend, even if vigilance remains, especially after the FTX default,” says Alexandre Azoulay, CEO of SGH investment fund, which manages one of the first European funds to invest in about thirty online companies3, more specifically in crypto infrastructure in the US and France. He gives us his market outlook for the coming years as the industry comes under pressure following the FTX bankruptcy.

Moderate concerns about the downtrend of the market

“Obviously, the crypto industry should not be seen as a market that is not connected to major macroeconomic and financial trends,” analyzes Alexandre Azoulay, who argues that “the combined impact of inflation and rate hikes imposed by central banks, such as systemic shocks that could be caused the war in Ukraine or the health crisis,” have contributed strongly to the downward trend of recent months. In mid-September, the publication of the consumer price index (CPI) in the United States, the growth of which turned out to be stronger than expected, sent a very strong signal to international markets where cryptocurrencies did not escape. After the announcement in 24 hours, BTC and ETH fell by 9% and 6% respectively, the Cryptonaute platform reminds. Episodes of panic marked by extraordinary volatility are already known in the past. So in 2018 the market fell 83%, and in 2021 bitcoin fell below the $30,000 threshold in June and July and surged in November of that year.

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But over the past two years, Bitcoin is no longer de-correlated from classic asset fluctuations internationally, making it more susceptible to economic conditions and monetary policy. Thus, rising interest rates encourage less risky and less volatile investments and hurt others, including cryptocurrencies, by making borrowing more expensive and less attractive. “All signals for investors are orange, but red is still far away. The expected turnaround in the stock markets in 2023 thanks to controlled inflation in the US and the possible end of the war in Ukraine could, in particular, help boost bitcoin. The bankruptcy of FTX is not systemic, even if it is shocking,” sums up Alexandre Azoulay.

On November 2, the Fed announced that it would raise key rates by 0.75 points, the sixth increase since March, to 4%, while casting doubt on a potential hike to 5% by early next year. “Observers are looking forward to signs of falling rates or lowering inflation before returning to crypto more en masse, this is a reasonable and logical trend,” emphasizes Alexandre Azoulay. But the correlation between falling bitcoin prices and rising rates is still not so clear, Alexander Azoulay points out: “It is also possible, but less likely, to think that the prospect of a recession or the resistance of the dollar to a fall could give cryptocurrencies, in particular bitcoin, the status of a safe haven.”

Western and Asian institutional investors smelled the right vein

From a global point of view, virtual currencies are gaining legitimacy and are now included in the strategies of financial players. “There are two positive trends. Firstly, it is the growing institutionalization of cryptocurrencies with the increasingly strong positioning of traditional financial players. The second is the rules that are created gradually, even if you have to be wary of too strict limits, ”says Alexandre Azoulay. A recent report by Cointelegraph Research, which polled 84 large investors from the US, Europe and Asia, showed that institutional investors are increasingly leaning towards the cryptocurrency market. 43% of them own digital assets, and 19% want to position themselves there in the next 12 months. In a broader sense, the average cryptocurrency represents 3.3% of the assets under management among respondents, with some of them having a risk level exceeding 50%. It is logical to assume that bitcoin is the most represented virtual asset, ahead of ethereum, which is constantly growing. “Other virtual currencies are less interesting or almost perceived as start-ups without a proven economic model, whose development is being tracked, but the future success is still unclear,” explains Alexandre Azoulay.

Each year, the list of institutional investors who deal with virtual currencies grows, with BlackRock, Bridgewater Associates or Goldman Sachs among the most important. “This trend should continue in the long term, despite some still obvious brakes, such as volatility, concerns about cybersecurity or the environmental burden of mining. Despite this, the market is attractive, and institutional investors in which we are shareholders, such as Digital Currency Group, which is a black rock of digital assets, remain confident in the prospect of a medium-term recovery,” explains Alexandre Azoulay.

Ambitious rules in Europe

In terms of rules, Europe is a pioneer, inspired in particular by the French case. Thus, two framework texts were formalized at the beginning of the summer. From now on, in accordance with the MiCA regulation, which defines several categories of crypto assets and the structure of their supervision, “digital asset providers” will have to obtain permission to work in the EU with a number of restrictions, in particular in terms of equity capital. As far as TFR regulation is concerned, it now combines crypto asset transfers with transparency rules regarding the information accompanying the transfer of funds.

Specifically, this regulation now requires the collection of data on the parties involved in transactions, with mandatory provision to the competent authorities in case of suspicions related to money laundering or terrorist financing. “The whole issue of regulatory implementation on a European scale rests on a strict balance between the need to get out of the “law of the jungle” that has long reigned in this market, and not to go too far with the risks that limit the development of digital technologies. assets,” emphasizes Alexandre Azoulay. “In its current state, the existing regulation should not interfere too much with the growth of the market, or even, on the contrary, contribute to its development. The failure of FTX may set us back 3-4 years, but it can also project us several years ahead if investors have an objective means of distinguishing a scam (Editor’s note. Platform used for scams) from a reliable and regulated platform. Our funds have always been invested in regulated projects such as Coinhouse, France’s first PSAN, and we are creating significant value in our funds while having no losses or defaults to date,” says SGH CEO.

The market remains resilient in the face of exogenous shocks

Observers and analysts want to be confident in the future of the sector, which must increasingly follow the development of the international economy. “Uncertainty remains associated with the cryptocurrency market. But the sector currently has a lot of feedback from past bearish waves, which remains encouraging. Paradoxically, we view the bear market as a favorable phase for value creation,” concludes Alexandre Azoulay.

A strong political will to support innovation is emerging in the French market, with notable success. Two major global players, Binance and, have chosen Paris to gain a foothold in the European market, and the startup ecosystem in the sector is growing month after month. A trend confirming the will of the French government: “We want to make the European Union the leading economic zone of the world in terms of structuring and organizing the crypto asset market. And we want France to become the European center of the crypto asset ecosystem within it,” explained Bruno Le Maire, Minister of Economy and Finance, last October.

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