The last few months, especially weeks, have been difficult in the realms of crypto.
The market, valued at its peak in November 2021 at $3 trillion, is now down to under $1 trillion. Every day brings more news of one coin or other faltering. Investors, big and small, are nursing losses, and the industry is downsizing. For example, Coinbase is looking to shed 18% of its staff. I look at my modest portfolio of crypto. What was once a lovely holiday in the South of France is now a weekend at Centre Parcs.
What is going on?
What is happening now feels familiar to those who experienced the first dot-com boom and bust. I remember the heady days of the late 1990s when money was plentiful and poured into building dot-com businesses and ideas. I was, in fact, in an agency, which was 12 strong when I joined it, grew at an extraordinary rate, managed to secure funding, and was on a path to IPO. The critical value criterium was the number of staff, so the key focus for the business was getting bums on seats.
And it all went brilliantly until it didn’t.
In the late 1990s, there were not large enough digital audiences to support the economics of those early web businesses. And in many cases, the technologies (software, hardware and networks) were not up to the job. If you asked anyone there, they would tell you that it was not a surprise when the crash happened. Put simply, there was a gap between expectations and reality and investment into dot-com companies was driven by emotion, gut feel and FOMO rather than business metrics. So it was bound to go pop!
The dot-com crash was a reality check that winnowed a vast number of bad digital business ideas out of existence. Strong businesses emerged out of the ashes, which have benefited from the relentless rise of digital penetration globally.
The last few years have seen a Cambrian-style explosion in the crypto space, and there are now well over 6,500 cryptocurrencies.
This proliferation driven by broader audience adoption as crypto has gone mainstream. A key driver has been COVID. People found themselves at home looking at their computer screens, often with some spare cash. That old devil FOMO driven by social media persuaded many (including yours truly) to invest. I remember someone telling me about their painter who had made a fortune on Cardano, and before I knew it, I was invested. More fool me.
Coinbase, Binance and other crypto platforms made buying easy. I would hazard a guess that many people had no idea what they were buying or why they were buying it, thus defying the simplest of investment rules – have some idea about what you are investing in!
As money poured in, more and more complex products emerged. Staking interest products enabled people to earn on their portfolios, drawing in even more money. I listened to a podcast on the Luna and Terra debacle, and my overriding reaction was, “its bit like the Big Short”. Products had been created that were so complex that even those that had made them were not quite sure what they were. As Luna crashed to zero, it erased about $45 billion. To put this in context, Bernie Madoff’s famous Ponzi scheme was worth $64 billion.
As we see, there are losers and likely to be many more. But there are also going to be winners. Overall a correction in the market appears to have been inevitable, and that is what we are experiencing. But, what underpins crypto is Web 3 technologies. These Web 3 technologies are slowly decentralising the network and pushing the power away from the big tech companies towards users, and there is not much that will be able to stop this. Web 3 technologies provide a rich palette for innovation. They should enable the majority to benefit rather than just a few, and as these technologies become more mainstream, the assets that represent them should stabilise. So out of this crash will come stable businesses that genuinely add value to people.
Some fascinating things are going on in the space. Here are just three that caught my eye:
Polkadot enables cross-blockchain transfers of any data or asset, not just tokens. Why is Polkadot potentially exciting? Take the use case of the various games platforms with their 100s millions of subscribers. There is currently no way to move assets between the different platforms, so if a player buys an avatar or a “skin” in one game, they cannot move that across to another. Polkadot provides a potential answer, enabling interoperability and beginning the process of stitching the platforms together into a without borders “metaverse”.
Unifimoney is a fintech start-up based out of San Francisco. It has pivoted from being a business-to-consumer (B2C) company to providing a platform to US community banks and credit unions. It works through third-party platforms, such as Jack Henry’s Banno Digital Platform, to enable the end customers to buy and sell cryptocurrencies as part of a broader investment suite. Community financial institutions have the opportunity to broaden their range of products and services. Providing educational content around crypto aimed at that audience gives them another chance for client outreach and relationship building.
Finally, Revolut, which has just launched crypto for business in the UK, offering SMEs the opportunity to invest in BTC or Ethereum. Revolut has made it much easier to do business abroad with out-of-the-box international payments, and now they provide alternative investments.
The next few months and years will be transformative. As we all observe what is happening, it is always worth applying sound business principles. I go with “If it sounds too good to be true, it probably is”.
About the author
He is a passionate customer advocate and champion and a successful entrepreneur.