By Jean-Baptiste Graftieaux on Thursday 15 September 2022
Longer term perspectives are needed to move the crypto story on from speculation to tangible innovation, writes Bitstamp's CEO Jean-Baptiste Graftieaux.
The current downward cycle in the digital asset market has exposed crypto for what it still overwhelmingly stands for – speculation.
In recent months, we have seen the market decline by over 80 per cent, which has ultimately exposed the poor risk-management practices of notable market participants, which has rightfully driven regulatory scrutiny.
The so-called ‘crypto winter’ has also demonstrated that the behaviour of market participants is still too cyclical and short-term – with longer-term perspectives being lost in the latest ‘hype’.
This over-inflated hype, spurred on by social media, causes the crypto market to overreact to both the up and downside. This, coupled with the deterioration of liquidity in the global financial markets, has led to a flight of capital from crypto to ‘safer’ assets. However, it is important to emphasise that all asset classes have suffered large declines in the last 12 months.
However, underneath all these issues lies a solid base of market participants and builders that are working on products and services that provide real tangible value and utility to customers. From solid blockchain projects that transfer substantial value across their networks to crypto-based remittance and payment networks, crypto-based yield-generating products that are superior to traditional vehicles and other crypto-based equivalents to traditional financial products.
Additionally, the previous cycle has seen tremendous disruption across the art, music and fashion industry through the introduction of NFTs which, whilst it they still have ways to go in terms of development, provide a new and exciting way for younger generations to perceive the value of blockchain technology, whilst also reflecting how they spend their spare time – in the digital world.
With this in mind, I propose five key steps the industry should take to thaw the crypto winter – from increasing transparency and mitigating risks to investor education and engagement with regulators.
Firstly, an increase in products and services that give investors a greater level of risk control and transparency will be crucial to overcoming the current instability. This will tackle the general deterioration of trust in crypto, which has acted as the catalyst for the market decline and lending industry turmoil.
Secondly, the industry should continue to educate users about the benefits of crypto-based services. The Learn Centres that are being launched by crypto heavyweights are crucial to creating more entry points for the millions of retail users who are interested in crypto as an opportunity to diversify their assets.
Third, the industry should continue its constructive engagement with regulators to ensure increased stability in the market and protection for investors. However, with increased regulatory pressures, there is potential for a lot of insensible regulatory requirements and provisions. Therefore, in the absence of regulation, market participants will need to continue to self-regulate and be able to apply best practice customer protection to drive continued adoption.
Next, when it comes to crypto adoption, the participation of banks and financial institutions will be key to mainstream implementation. However, in order to achieve this, the industry must begin to build the required infrastructure (including commercial models and environment controls) to make the transition from traditional finance easier to understand and execute.
Finally, if the industry wants to truly thaw the crypto winter and drive mainstream adoption, it must address its gender diversity gap. Recent studies have shown that women make up only 26 per cent of crypto-asset investors, and companies with a woman in the founding team made up only 17.7 per cent of venture-backed blockchain start-ups between 2012 and 2018.
If the industry wants to close the gap, it must work to make crypto more accessible by providing further education that does not exclude those who are not ‘in-the-know’. Equally, exchanges and blockchain companies must reconsider their hiring strategies in order to lead by example and place more female role models in the industry. If the sector continues to ignore half the population, it can never achieve true mainstream adoption.