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The ingredients for the crypto market of tomorrow

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The ingredients for the crypto market of tomorrow

The performance of many tech stocks and major cryptocurrencies in 2022 was generally poor and, in many cases, disastrous. The stock exchanges collapsed under the pressure, among other things, of inflation, possible recession, war, disintegration of the supply chains of any industrial sector and non-trivial geopolitical issues.

Crypto, still a drop in the ocean of financial assets overall, has performed as well as listed small cap firms perform when markets are bad. Something specific contributed to this collapse: first the attack on Earth and, later, the end of hedge funds such as 3AC and CeFi companies such as Celsius and BlockFi which, although unwilling to do so, paid dearly for their business model based on opacity.

The “crypto winter” has therefore arrived and thousands of startups in the sector have asked for help from giants like Binance because they fear they will not make it to the end of the month or the end of the year, while the VCs have heavily revised downwards the valuations to which they may invest.

And since there is still no clear perception on how the world will turn in the coming months – indeed there is widespread pessimism – all markets continue to decline or, at best, not to reverse the trend. Normally, in these cases, we see a rather interesting phenomenon: the retail world, or the “normal” customers of commercial banks, tends to stay away from the stock exchanges while, on the contrary, the private banking customers “smell the deal” and try to get back at the lowest possible prices. In short, there are those who follow the current and those, like salmon, swim in reverse. Of course, no one knows when “the lowest possible price” was, or when it will be.

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This is also happening in crypto, where many continue to ask themselves: “Does it cost me more to stay out of it or to put a foot in and start understanding? And if so, how can I avoid missteps? ”. This is the dilemma, which has arisen especially in the last two years, of millions of private banking clients around the world. And therefore: “Do I take a position on crypto? Do I stay away from it? And if I enter, who can assist me? ”. Yes, because High Net Worth clients (elegant English term translating into “people who are well”), rightly well accustomed to their classic finance consultants, hardly accept the “do it yourself” logic typical of the first ten years of the crypto market.

Bitcoin, born to make the revolution, has become mainstream over time. Sure, it’s still a drop in the bucket. For this reason, the whole crypto market still is today, if compared to the value of global assets, but the signal is clear and many of those who just two years ago were asking themselves such questions today are crypto asset owners.

However, this market, to really grow, requires a significant change of gear in terms of technology, type of services and approach in general. Specifically, there are five needs that must be met. Let’s see them.

The first and fundamental need is to be able to have solid custody structures, so as to avoid what happened in the first ten years of this industry born from scratch, during which as many as 20% of all Bitcoins were lost for always thanks to rudimentary systems of custody.

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The second is to have easy-to-use solutions available: this public is generally not a “geek”, has little time and wants to deal with safe and intuitive platforms and apps.

The third important need is to be able to increase the amount of your crypto assets day after day, which is now possible thanks to solutions such as the staking of some cryptocurrencies: a way to validate the nodes of certain blockchains by receiving a certain number of coins in exchange. digital. Or through participation in DeFi’s liquidity pools, or decentralized finance, where certain cryptocurrencies can be lent in exchange for certain amounts of crypto themselves. Or again, and it is the one that convinces me the most today, providing crypto liquidity to decentralized exchanges, receiving in return most of the commissions they generate for each of their transactions.

The fourth, typical of a market made up of an adult public, is linked to the need for timely support with regard to both tax aspects and those relating to any transfer of ownership or succession.

The fifth, perhaps the most important (disclaimer: it is the basis of Anubi Digital, the digital asset custody company I co-founded in 2020 to allow safe, simple and profitable ownership of digital assets): transparency. Customers must be able to choose if and where to “work” their cryptocurrencies and, if so, what risks they face. Furthermore, fundamentally, their digital assets must not mix with those of the company and therefore must not be part of the company’s balance sheet as is the case with almost all centralized finance companies.

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But to truly grow, the market must satisfy an unavoidable need: good regulation that we talked about in the previous post. We will become the first multi-nation place in the world to have regulation for the ownership and management of crypto assets: MiCA. The rules that will come into force will be quite strict – too much, according to most. But they will finally allow all regulated entities to offer their customers various types of crypto products in full compliance.

It is no coincidence that banks, SIMs and many regulated entities for some time have wanted to understand us more, while more than one is already working on developing their own strategy in this regard: because if most of the elderly customers do not show any interest for Bitcoin and its sisters, on the contrary, the more the age drops, the more the desire to be exposed to crypto rises and becomes aware.

After about ten years in which classic finance and crypto have traveled along parallel lines, often ignoring each other and sometimes arguing, a new phase has recently begun: that of convergence. Some think that decentralization, the philosophical essence even before the technological one of cryptocurrencies, and centralized subjects cannot really work together.

Others, including the writer, believe that this convergence has actually already begun: a path that is not easy and not short, but what is needed to grow the digital asset market and bring it to a first, significant maturity.

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