The end of 2022 arrives after a long and unnerving bear market. What is worse, the events that led to the bear market shocked the crypto world and put even more question marks on its sustainability.

The crypto market is now in a state of wait-and-see, between the possibility of a deeper crash and a tentative recovery. But, it may take months and a few important realizations before crypto markets get back on track and regain trust.

There have been many market crashes over the years, such as the securities and bond market, the dot-com stock market, the severe crash of real estate banking and property value, and now the cryptocurrency market.

All of these had very similar precursors, such as pie-in-the-sky insane profits with people getting rich overnight with little or no knowledge of the actual market itself or some sort of insider knowledge as to how to manipulate the system.

Finally, there were always, in the end, a few protagonists that took things to the next level, like Michael Milken and now the CEO of FTX, Sam Bankman-Fried. However, all of these markets recovered, and all of them started this recovery with more solid regulation, and while everyone still wants to make a profit, the crazy fever of getting rich quickly disappeared into a more paced and intelligent effort for long-term wealth.

The crypto market is entering such a stage because, after many ups and downs, the last two years saw the most dramatic bull market followed by high-profile meltdowns. A few factors must settle before investors feel confident again in using crypto as an investment tool or for another use case.

Stablecoins Must Remain Stable in Wake of FTX

One of the first conditions to return trust to the crypto markets is for most stablecoins to retain their peg to the US dollar with minimal fluctuations. For now, USDC is a more reliable stablecoin, and we are observing attempts to exchange other assets for this cash-backed token.

But, USDT is still scaring the markets as it hovers just below the dollar peg at $0.9997. There is no surefire recipe to avoid the fears around USDT. One of the possibilities is that more of the capital will be held in USDC coins, which are also a preferred retail investment tool.

The FTX Fallout: What Remains Hidden

The fallout of the FTX exchange collapse in November was not an isolated event. It happened in a crypto market already reeling from the crash of Luna, followed by Celsius, Three Arrows Capital, and Voyager Capital.

One of the big threats to the market is the still unknown funds once held by FTX. Even with in-depth analysis, there is only a partial view of which funds are still under the control of FTX. There is also no way to predict whether ETH, BTC or other assets would be sold on the open market. It is still early to gauge all effects, but there are some signs that, with time, even the assets of FTX can be absorbed by the market.

See the Defi vs Cefi: Charting New Landscape Panel Discussion at FMLS22

Self-Ownership Must Return

The value of custodial wallets must be understood once again. After the dramatic losses of coins held in custody, not even services of good reputation can be considered safe. A new generation of crypto users and traders must be taught again how to rely on wallets.

Some of the crypto projects required vast stashes of locked-up coins and tokens. Those projects served as liquidity but were also exposed to risk from hacks, breaches or errors. Some of those issues may be fixed with better smart contracts, but all crypto owners must be able to know beforehand which coins they can control and which are at risk of being wiped out or lost by third parties.

A Return to Bitcoin

It may take a return to Bitcoin to calm down the markets and offer a more solid asset. A return to owning Bitcoin would simplify the asset class for most users. Some of the wrapped or locked BTC may have to be flushed out and lose value before a new standard of crypto value emerges.

It is not entirely true that cryptocurrencies are attractive only for their ability to pump. There are plenty of users setting up wallets for utility, such as spending, faster international transfers, remittances, and even paychecks. That convenience will not be abandoned easily.

And finally, some form of regulation may be established to protect users. This may come from the industry or from outside sources. As more experts are aware of the reporting potential of crypto, it would be possible to be transparent about real reserves and liquidity practices. The cryptocurrency market and all its participants must have the motivation to regulate the right way if they want confidence and investment to return for a new run and drive the next bull market.

James Seaman is the CEO of Hitbox Games