Resetting Prices means Resetting Expectations
Hodl, lambos, mooning. The neologisms of cryptocurrency make for fun conversation and turns the pressure of high risk investing into a series of laughable memes. But let’s look at the broader picture here. There are many investors who have lost massive amounts of money over the preceding month. There are people who sold their positions for 50% losses and will never return to cryptocurrency out of the stinging memory of that loss. We need those investors. The industry as a whole is still in the adoption phase. When we experience a severe downturn like the current correction, it shakes off a lot of bad actors and even worse investors, but it hurts the novice and idealist alike–something that could have long-term ramifications. If cryptocurrency has a future in the digital age (and don’t allow a change in price deter your from that picture) we might need to get a little more serious.
It doesn’t have to be as starched and stuffy as traditional Wall Street, but we need people to align their expectations with something other than price and the amount of money being made. The majority of the nuovo-crypto rich are benefiting heavily from early adoption. As the 10,000% gains subside, the rest of the market and new investors need value that is generated from use and utility, not simply from getting in at a price point lower than the next investor.
With the severe correction and people losing money, hopefully the narrative of crypto will switch from ponzi scheme to one of general utility. Stocks are shares in companies that produce real world value. Investing in crypto, at least at present, does not have the same impact. It’s been nearly ten years since Bitcoin first broke onto the scene, and while adoption can be a slow-then-exponential process, it’s time to get things moving. It starts with shifting the expectation away from this will make me rich to this will change X industry. Making money off of crypto investments should be the by-product of investing in technologies with proven value to the world.
Re-Examining the Role of Bitcoin
It’s nothing new: market valuation across altcoins has been determined by the rising and falling price of Bitcoin for some time. What’s good for Bitcoin is often good for the market, with capital flowing through BTC and pumping the dollar and satoshi value of coins, like a fleet of ships rising with the tide. However, the opposite is also in effect. When Bitcoin suffers, the entire market falls for a number of reasons. The first is market confidence. A plunging Bitcoin price undermines the value of cryptocurrency as a whole, to both investors and the general public. It also skews the value of BTC/altcoin pairings, which is the predominant method for trade on most exchanges.
Shifting the focus away from Bitcoin is not a condemnation of the coin. Look at this way: you can have a significant stake in Tesla stock, but that doesn’t mean you want the entire market or your portfolio to hinge on Tesla’s performance. An end result of this correction, like all financial shakedowns, is that the severity of loss will produce an equal increase in responsibility. Investors are going to have to consider where they put their dollars instead of pumping empty projects in the hope of overnight riches. So while it may hurt wallets and depress investors in the short term, the whole industry will come through this correction better for it.
We foresee the emergence of “blue-chip currencies,” much like stocks, that inspire the safest and soundest investment. Bitcoin is undoubtedly a blue-chip currency, but as outlined in the Tesla analogy, the market doesn’t need to revolve around one currency. The first move is to shift away from BTC/altcoin pairings as the standard for exchanges. Fiat is a more useful tool for comparison, and allows the entire market to be valued in dollars (or your native currency), without the oscillating price of BTC interfering. While we have been bullish on the prospect of XRP/coin pairings, it only shifts the problem to a new coin (i.e., the market will now be tied to BTC, ETH and XRP). More native currency pairings helps diffuse the impact of BTC price swings, but in the end it’s better for the industry to use fiat as a measuring stick to judge value.
The second move is creating more portals for buying currency outside of Bitcoin. There are numerous novice-targeted exchanges that offer Bitcoin, and it skews the market in the direction of a smaller selection of coins. While these currencies may represent the aforementioned “blue chip” status, their long-term prospect may not be worthy of that title. For instance, if Nano (RaiBlocks), capitalizes on making instant, zero-fee transactions, it has stronger value than a similar transaction-based currency like Bitcoin or Litecoin. The market needs to be able to dictate what has the most value, and it starts with ease of purchase.
We’ll reiterate again to avoid the FUD-spreading that is becoming common in the cryptosphere: what’s good for Bitcoin is good for the market as a whole. The same can be said for Ethereum, Ripple, Litecoin, etc. We, as an industry, want our blue chip currencies to succeed. We also want to encourage speculative investing to fund interesting, but risky projects that may change the shape of the world. But what we don’t want is overbought, overvalued market conditions, which is largely what was created in December and January and contributing to the severity of this correction.
We all know this needs to happen. There are too many weak hands in crypto right now, too many novice investors that haven’t had to weather the bull/bear cycle of a traditional market, and an abundance of greed. It’s fair to be an investor in cryptocurrency for the profit alone–it’s not healthy for anyone to have certain practices like BitConnect and ICO scams associated with the industry. Likewise, product-less currencies should not be pumped to billion dollar valuations off of rumor and expectation alone. The market is going to have to get better as a whole, or cryptocurrency will come to fulfill the expectations of another dot.com bubble or tulip mania.
Coinbase should not have to remind customers to invest responsibly in an email sent to thirteen million users. Banks and credit card companies treating crypto as cash-advance instead of a traditional purchase is good for everyone. You may think you are making a smart decision by gambling a loan on cryptocurrency, but you are only hurting yourself and contributing to the severity of an overbought market.
All of these factors create an industry that is heavily overvalued (for now) and filled with investors risking too much of their capital. Some people see the present drop as the natural cycle of crypto and point to previous crashes (such as when Bitcoin fell from $28 to $3) as more severe and threatening. We tend to agree. This is a correction. Like all corrections, it will swing again in the favor of price gain. But the timeframe is now skewed. It may take a week for Bitcoin to climb back to 10000 USD, or it may be months. Now is not the time to focus on price and money being lost, but instead to re-evaluate the purpose of cryptocurrency and whether or not it has a viable future.
It’s frustrating as an investor and enthusiast in cryptocurrency to see a unanimously negative press coverage against Bitcoin and the price drop. From CNN to Gizmodo, the headlines are pronouncing that cryptocurrency is failing and the sky is falling. We know better. We know the market is correcting and the prices will climb into the green–at some point. But the correction is the product of the conditions the industry established and allowed to continue. When there is money involved, there will always be greed. The majority of the marketplace can combat the myopic expectations of profit-seeking by looking for value and utility.
If you want people to become interested and invested in cryptocurrency, don’t sell them on the profit. Instead, show them how cryptocurrency could be in a natural cycle of adoption similar to the internet. Teach them the value of Ripple in the financial industry, Ethereum in smart contracts, and how Litecoin and Bitcoin could be the world’s first decentralized, universal currencies.
Let’s move towards utility and intrinsic value as opposed to staring at price-trackers.