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The Hidden Forces Choking Out SMEs in the Crypto Winter
Traders Magazine Online News, March 20, 2019
The crypto economy is a strange place. Normally, new technological frontiers are adopted from the top down (prohibitively expensive technologies slowly become cheaper and more accessible) or from the bottom up (underground movement or DIY method see mass adoption or appropriation). However, the crypto world is a different beast entirely. A sandwiching effect is currently taking place, and it’s suffocating small and medium enterprises from both sides.
Crypto originally promised financial independence and accessibility through borderless, trusted, peer-to-peer transactions, but since crypto rocketed into the mainstream in late 2017, several factors have made the space increasingly restrictive to operate within. [iMGCAP(1)]
In an effort to profit off the popularity of cryptocurrencies, countless ventures sprang into action to take advantage of the crypto market, essentially introducing intermediaries into what was supposed to be an intermediary-less system. After the crypto boom ended, widespread public interest waned and speculators hightailed out of town, leaving these previously burgeoning services stagnate.
Countless crypto wallets sat inactive and mining profits quickly declined, bottlenecking much of market. With significantly less market activity, high fees and low liquidity quickly bogged down exchanges, causing users to pay exorbitant fees and discouraging them from using crypto on a larger scale. And that’s a problem.
Many of the players who need these networks to flourish the most are the startups and enterprises driving the next wave of blockchain innovation, however, skeptical investors and unfavorable trading conditions are making progress tough. There is simply not adequate infrastructure for these ventures to conduct business (good places to trade a few thousand dollars in crypto).
Most other similarly-sized companies outside the crypto world are perfectly happy dealing with traditional financial institutions, and so far, are sticking to their guns. If crypto startups are suffocated by an unsupportive market, it will be a loss for the world as a whole.
Interestingly, the crypto market is flourishing both above and below these ventures’ price range, and it’s exacerbating the problem, acting as a vacuum and sucking all transaction activity to two polar opposite ends of the market.
In countries with severe inflation and political instability like Venezuela, crypto trading is flourishing as users trade meager amounts of currency over platforms like Localbitcoins or Coinbase. Crypto has stepped in as a second layer transaction method, acting as both a means to preserve and secure wealth and pay for scarce goods as the countries’ fiat currencies inflate more and more every day. Participants are able to easily transact over-the-counter via mobile apps for amounts totaling just a few dollars, and adoption rates are soaring.
Just last month, a new all-time high was traded in VES (Sovereign Bolivar, Venezuela’s currency) via crypto, with 24.4 billion VES, or over $7 million, changing hands via Localbitcoins. While this trading activity is extremely important for crypto adoption, it does little to help fund SME development.
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