On December 12, the media outlet The Block announced that stablecoin “Basis” was canceling its project and returning all the investors’ money raised for its development. Though a lesser known venture, Basis held huge potential as a very innovative concept. It planned to achieve price stability by increasing and reducing the coin supply using an algorithm. However, due to ever more restrictive regulations, the team decided that too many changes would be needed to make the program compliant. And the end product was simply not worth the effort. The impact on the market was immediate and detrimental.
Soon after the announcement hit the news, the crypto market lost several billion dollars in marketcap. And Bitcoin’s price dropped approximately $100 in a matter of hours. However, the hardest blow was the loss of investors’ confidence in the crypto space. Since the announcement, venture capital investors have expressed doubts about future investing into crypto projects. Barry Silbert CEO of DCG, a venture investment firm, stated that “Half a dozen fundraising deals fell apart in the past month after the lead pull out.” This is in part due to the crypto winter but also to the extreme resistance new projects face with regards to regulation and costs.
This sentiment creates a real danger to the very future of the crypto ecosystem. Being a nascent environment, crypto depends on capital for liquidity, volume, and R & D. A prolonged lack of cash influx will cripple development and prevent future growth. Furthermore, fear of the SEC can set off a chain reaction causing more projects to abandon their work potentially threatening a total market collapse.
Fortunately, there are still high profile VC investors that remain bullish about the future of crypto currencies including Mike Novogratz. He believes Bitcoin is a long term revolution that in time will produce game changing results at a global scale. Mr. Novogratz is one of the investors in Basis that will receive part of the $133 million refunded. For the time being, the termination of Basis adds to the fear and further price decline. Hopefully, other projects overcome the current testing phase and restore investor’s faith in Bitcoin and its market.