Accounting firm PWC’s Hong Kong branch recently released a crypto insolvency report guiding crypto business owners on what to do “when things start to go wrong.” Bitcoin.com News spoke to the crypto head of PWC’s Asia operations, part of the team who released the report, on how he views the current cryptocurrency landscape, the factors that are causing crypto firms to become insolvent, and why he believes industry regulation is unavoidable.
Why Crypto Business Owners Need Help Navigating Insolvency
It would appear that the industry has almost come to accept that most crypto businesses will experience financial mishaps at some point in their lifecycle, many before an MVP has even been released. Some companies even go to extreme lengths when faced with bankruptcy, such as possibly faking an owner’s death or at the very least overstating losses in what has been one of the most dramatic alleged exit scams.
The release of the PWC report sheds further light on the industry-wide malaise. Indeed, research from January 2018 conducted by Boston College assessed 4,003 ICOs that raised a total of $12 billion and found that only 44.2 percent of new ICOs survive for more than 120 days post-launch. What was once considered a fundraising Elysium has since seen little more than pillage, carnage and widespread incompetence.
While the ICO advisory firm Satis Group quantified in Match 2018 that 81 percent of coins with a market cap of $50 million or greater turned out to be scams, the global accounting behemoth — which provides crypto guidance to industry players globally — notes that in the industry, even the best of intentions can still meet with dire results:
Whilst the crypto ecosystem continues to make considerable progress in building out its infrastructure and ‘institutionalising’ the space, many crypto players are facing challenges due to a broad range of issues, from a fall in crypto asset prices to more regular start-up challenges. This is forcing many well-intentioned crypto firms into financially distressed situations with the need to urgently restructure their operations or redefine their business strategy in order to stay afloat.
The report sought to educate cryptocurrency owners on the basics of insolvency as it pertains to the crypto space.
Most Will Die, a Select Few Will Change the World
After the release of the report, Bitcoin.com News spoke to Henri Arslanian, PWC fintech and crypto leader for Asia, chairman of the Fintech Association of Hong Kong, and adjunct associate professor at the School of Economics and Finance where he teaches one of Asia’s first fintech university courses.
According to Arslanian, what is currently happening in the crypto ecosystem comes as no surprise, being similar to what happened in the last tech boom, a sentiment shared by many in the industry. From his position as crypto leader at PWC, which offers advisory services to crypto exchanges and funds, ICOs, STOs, and stablecoins, financial institutions and governments, he anticipates that while many crypto firms will shut down, some will survive. He adds:
And the firms that survive may change the world in ways we can probably not even imagine today.
The Changing Face of Crypto Fundraising
Arslanian emphasizes that all types of startups face financial challenges, including crypto projects. One challenge that is somewhat unique to crypto companies, he says, has been treasury management.
Many have raised funds in cryptocurrency but have their expenses in dollars. Whilst this was not a problem when markets were going up, it has proven a challenge when markets went down.
Now that the market has significantly slowed down, Arslanian feels that while we’re seeing significantly fewer companies conduct ICOs, traditional angel and VC investment in crypto companies are picking up. He also expects to see consolidation and acquisitions take place in the industry in the coming months.
Regulation: the Keys to the Castle?
As a lawyer and crypto policy advisor, Arslanian is bullish on regulation, viewing it as the only way to achieve long-term, ecosystem-wide industry health and sustainability. He’s of the opinion that regulators in many countries have done a very good job in providing regulatory clarity, but often don’t get the credit they deserve.
He feels that regulators in both smaller markets like Malta, Gibraltar, Bermuda, Bahrain, and larger ones like Hong Kong, the U.K, France, and even the U.S. have been proactively working on providing regulatory clarity. This, Arslanian adds, is something that the crypto community should welcome. He notes:
The average regulator I speak with is often more knowledgeable on crypto assets than the average financial services professional.
Arslanian ends by saying that at this stage of the development of the crypto ecosystem, and for the industry to grow, greater comfort needs to be provided to institutional players. For this to happen, he insists, having regulatory clarity is essential.
Gone But Not Forgotten
In the aftermath of the ICO hype, with its rollercoaster highs and now crippling lows, it’s sobering to see an industry which for a brief period spiraled wildly out of control returning to more conservative dimensions. Of course, as the PWC report notes, there are consequences to be faced: a royal mess has been left to clean up, and in a world that has gone from Satoshi’s erstwhile decentralized vision to an industry where regulators now swing the scepter, a big lesson has arrived a little too late. Just because you can bite off more than you can chew doesn’t mean you should.
What do you make of the PWC report – is it a sign that the crypto startup hype is officially over? Let us know in the comments section below.
Images courtesy of Shutterstock, PWC exec. Henri Arslanian, and Satis Group.
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