With the price of Bitcoin plummeting and stablecoin’s famous meltdown, it seems like the earn-money-quick days for crypto investors are over.
It’s a fast-moving world, with crypto events and stats changing rapidly. Ethereum, once designated as the future of altcoins, is trading at 60% of its original value, and Terra’s virtual bankruptcy almost wiped out £50 billion from the market. Cryptocurrency broker Voyager Digital has filed for bankruptcy protection, blaming the move on “volatility and contagion” in the markets.
Amidst the plunging prices and frozen liquidity, crypto exchanges are bearing the brunt of what’s called the crypto winter of the century.
On top of that, the ongoing Russia-Ukraine crisis, tight monetary policy by US Feds, mandatory KYC requirements by the EU, and fear of an early recession have created a massive Lehman moment for the global crypto market.
Gemini has already announced 18% layoffs, Finblox capped its withdrawals and Coinbase shares fell by more than 86% last month. The market is contracting, and crypto enterprises have already lost more than $2 trillion (£1.68 trillion) worth of trade.
Despite the crypto platforms struggling through the crash, it seems like the investors are better prepared this time. The meltdown is nothing similar to what the world witnessed in 2018 or before and, thus, has a higher chance of fighting back than its predecessors.
In a broader venture capitalist ecosystem, even big enterprises are ready to back small ventures with a potential to grow later as competitors. Coinbase itself has funded several small crypto exchange platforms last year, breaking entry barriers for mid-sized businesses in raising funds.
Bright Side of the Crypto Crash: It’s Different This Time
Today, most multi-billion dollar exchanges are entering the bear market via derivatives trading, a traditional space for large, centralised banks to stay relevant. Coinbase has already filed for its first crypto derivative product, Nano Bitcoin futures (BIT), and is awaiting approval from Commodity Futures Trading Commission (CFTC).
The derivatives market is $3 trillion (£2.52 trillion) strong, demands fewer capital resources and delivers higher margins for investors – an idea sustainable for long-run profits and trading crypto volatility. Plus, the volume of the futures market speaks for itself; Binance’s crypto derivatives market saw a $52.5 billion (£44 billion) trade, while its spot trading closed at $12.7 billion (£10.6 billion) at the start of July.
Cryptos are still like a nascent island, disconnected from the rest of the financial system. The derivatives market is a chance for crypto exchanges to launch themselves into the mainstream.
Nevertheless, for some, the present crypto volatility is natural, and it seems they are prepared to handle further shockwaves. California-based Abra calculated its risks beforehand and launched a token-driven loyalty program for retaining existing customers.
With Abra’s CPRX tokens, users can avail cashback, bonus yield and negative interest rates for effective loans. The crypto management firm has acquired around $1.5 billion (£1.2 billion) worth of assets since then and is going strong without capping any withdrawals or signing layoffs.
Another way crypto ventures can pull through is by looking beyond initial coin offerings (ICOs). These went on to become the face of pure decentralisation for VCs a while back; however, times have changed. Crypto ventures can now think about pairing virtual assets with tangible commodities in a mixed ecosystem.
Europe’s Virtuse connects the best of both systems – centralised and decentralised – to create a near hybrid entity, facilitating the role of a bank, broker, underwriter and even custodian. It’s time for exchanges to look beyond a monochromatic future and create a versatile, bankable profile that investors can trust.
A more stable mode to bank on than an ICO is through security token offerings (STOs). The digital security market has existed for some time, but it hasn’t thrived exactly like crypto. Now that crypto’s existence is under threat, exchanges can tap the securities market to attract the crowd.
Crypto platform Huobi has invested in SharesPost and OpenFinance, thus renewing interest in the STO ecosystem. Besides, Coinbase has also expanded its STO branch by acquiring Venovate Marketplace, Digital Wealth and Keystone Capital.
Maximise Decentralisation by Supporting Global Central Banks
Desperate times call for desperate measures. For these crypto platforms stumbling to stay in the race, the best shot is to maximise decentralisation while removing the long-standing antagonism with government authorities. Global central banks are in line to launch their respective digital currencies, and most of them lack the basic infrastructure to get started.
That’s where crypto exchanges can fill gaps – by lending banks the necessary technological support. It’s a new-age quid pro quo in which banks can borrow innovation while deregulating the crypto market for ventures to thrive and grow.
Crypto assets have a real-world utility, even more so after the COVID-19 pandemic. And if the crypto platforms – the flag bearers of a decentralised currency system – can absorb the fluctuations through budget cuts and fiscal tightening, the virtual coins will surely stay. Otherwise, they are bound to perish, just like Luna and Mt. Gox.