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 its 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 thats 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 its 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, Venezuelas 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.
On the other side of the spectrum, crypto whales are engaging in massive private over-the-counter (OTC) deals out of sight. While these deals protect the market from massive spikes in volatility, they also make the market murky and unreliable. How truly decentralized is a given network?
These closed door trades account for the movement of $75-80 million everyday and a single trade can range from anywhere between $75,000 to hundreds of millions.
Here, startups run into the opposite problem they face in regards to Localbitcoins transactions. While the underground transactions are too small to be meaningful, OTC trading is prohibitively expensive to partake in, meaning only the most well-funded ventures find themselves able to participate.
These whales are banking on the idea that continued innovation in the industry will make their mammoth holdings even more valuable in the future, but if SMEs cant access the funding they need and continue pushing forward, it could all disappear before anyone knows what is happening.
In the dead of the crypto winter, the middle of the market is suffering the most. Crypto trading is only advantageous in the most miniscule and colossal amounts, and if this trend continues, the entire industry will suffer in the long run. We have to find ways to reinvigorate this major slice of the market because they hold the keys to future innovation. Otherwise, this decentralized space may well just be co-opted by old-guard institutions and stripped of its revolutionary functionality.
The current cycle of the top simply profiting and the bottom transacting due to instability is unsustainable. If the SMEs making up the middle of the blockchain sandwich fall out, everyone starves.
Dima Zaitsev isICOBox‘sHead of International PR
