As the industry continues to evolve, stakeholders must remain vigilant and proactive in addressing new challenges. At the same time, keeping in mind the lessons learned from the past year will be critical when it comes to regaining trust and working with regulators.

Last year offers several parallels with the global financial crisis of 2008-09. Back then, the financial industry was also heavily scrutinised and critiqued following the collapse of the Lehman Brothers and the subprime mortgage scandal.

Despite the various similarities with other industries and commodities, cryptocurrencies have their own unique challenges. As Annabelle Huang, the managing partner of Amber Group, posits, “just consider the magnitude of these kinds of events and the shortened timeframe. You have to learn so much, so quickly.”

In a traditional financial environment, such a situation could have seen a backstop or liquidity injection, “but within crypto there’s no saviour, so to speak”. Consequently, “given that this is a nascent industry, with new forms of technology, investors are now definitely a lot more risk averse,” Ms Huang remarks.

As crypto is here to stay, it’s critical that the sector first rebuilds trust with their customers in order to be able to move ahead. To Amber, this has always been a part of their DNA. “Our approach hasn’t really changed,” Ms Huang says.

A part of this involves completely reassessing all operations. “We will review all our assumptions and require more due diligence and more disclosure. We also want to ingrain more traditional financial industry practices, because, to us, it just makes sense,” Ms Huang states.

As one example of this, Ms Huang explains, Amber has launched its first mutual fund. “We have disclosed exactly where the assets are and what exchanges or venues we will use to trade, so therefore, we are giving our clients full disclosure and transparency into how their assets are being managed.”

Another way that confidence can be rebuilt is in regulation. And on this front, Asia-Pacific is leading the way, with Singapore and Japan clearly demonstrating how they will regulate the sector. Hong Kong, meanwhile, recently proposed new rules that required all centralised virtual currency exchanges to be licensed.

There have been changes on the institutional side too, but there appears to be a dichotomy between those that have, or have never, invested in cryptocurrency. For the have-nots, Ms Huang outlines that this situation “has definitely dissuaded many institutional and retail investors from entering into space at the moment.”

On the other hand, she says, “a lot of institutional investors that already hold cryptocurrency are continuing to do so.” This doesn’t mean that they are being apathetic, however. “They might be waiting on the sidelines to see when to invest further or what other sort of digital assets they want to allocate to, but they’re still interested and they’re not leaving the space anytime soon.”

“If anything, we’re seeing an uptake not just in the secondary market this year, but also in the primary markets, where investors are keen to support early stage projects in the hopes of finding the next unicorns or projects that will come out in the next cycle. So I don’t think that [the collapse last year] has completely destroyed that confidence and interest towards crypto, but everyone is far more careful when it comes to due diligence,” Ms Huang continues.

And, in another development that could further underscore crypto’s recovery this year, two coinciding Ethereum upgrades – known as the Shanghai and Capella upgrades, or Shapella for short – were implemented in April 2023. Among other things, these upgrades allowed withdrawals from the Beacon Chain. This led almost immediately to vast flows of crypto in the following days – Ethereum’s price rose to above $2,100, its highest level since May 2022, and a net of some $375 million worth flowed into exchanges within four days.

“Last year was difficult not just for crypto, but also various other industries and asset classes,” Ms Huang says “But we were able to survive, and now we can continue to commit to our customers and to our clients.”

Ms Huang concludes that it is time to look forward. “We at Amber Group are very hopeful for the new era,” she says.