Bell Gully Report On ‘Crypto Winter’

With some pundits now predicting 2022’s ‘crypto winter’ may stretch into an ice-age, a new report looks at where the impacts are being felt – and what might prove more resilient.

The report from law firm Bell Gully, The Big Picture: Blockchain and Cryptocurrency, canvasses how an asset class which has never before been through a global recession may be tested in the wake of the cascading losses and contagion seen with a number of major collapses in the sector this year. It looks at key trends and the developing regulatory landscape, including whether regulation is a problem or a panacea.

Campbell Pentney, a special counsel with Bell Gully, noted the downturn is prompting a ‘wash-out’ of less robust assets on one hand, while prompting greater transparency from others – with some cryptocurrency exchanges now publishing their asset reserves in the hopes of boosting confidence. He said there was shift toward more transparent decentralised projects that do require investors to forego custody of their cryptoassets.

“Is this the end? It is still very different to the collapses seen in 2018, 2014, and 2011” said Pentney, a tax lawyer with expertise in the crypto sector. “As someone who has been an observer in this area for a number of years, those periods seemed to present a more severe existential risk in many ways.”

He anticipates the sector’s current travails may prompt more regulation after a period of reflection. In his view, however, that is not necessary a negative for the industry. As a tax expert, he often sees “huge uncertainty” deterring those who want certainty in planning their affairs, and will want clarity over the tax position that will result from any transaction or deal. Similar issues arise in terms of the classification of certain cryptoassets as potential securities. 

“Regulation might be one answer, provided it is balanced and sensible, and doesn’t undermine the benefits of cryptoassets to a point where they become unusable,” he said. “When legal uncertainties are addressed it often gives participants more confidence.”