By: Chris George, senior VP of product, Somo.
“Trust me, I’m in crypto.” These are not currently words to inspire confidence in most consumers. Recent headlines relaying multi-billion dollar failures would suggest they do exactly the opposite.
In truth, these have been turbulent times for the cryptocurrency sector. Earlier this year, we saw the fall of TerraUSD, an algorithmic stablecoin which ultimately brought down a major hedge fund, Three Arrows Capital. The market stabilised somewhat, only to once again be shaken by another shocking news story, this time that the much-vaunted FTX Exchange was about to collapse following a failed merger with competitor, Binance. The resulting run on deposits has left an estimated $8bn hole in its books, with the assumption that few investors will see anything like their original deposits returned to them.
Investors would be forgiven for thinking they have somehow stumbled upon a financial Wild West and in some ways they are correct. More worryingly, leading financial figures have expressed concern, with a top Bank of England official warning that “crypto needs to be regulated before it grows big enough to threaten the whole financial system.”
Worrying words indeed, but a prediction that doesn’t necessarily need to come to pass. Certainly the collapse of FTX exchange could shake the confidence of individual investors, but among the mass market sums tend to be small, experimental and, in many cases, come supplied by trusted, established banking brands. VISA and Mastercard already have crypto-linked cards which offer consumers not just the opportunity to dip their toe in crypto, but to do so with security and legal protection.
The exposure to the mass market will be just one of the pillars that needs to be built for crypto to move out of its ‘Wild West’ niche and into the mainstream. By early 2022, one in 10 of all UK adults had already bought crypto at some point and the younger generation, in particular, are taking more than a passing interest. The greater the adoption, the more trust will be built in the market in general – this will build some much needed intrinsic value.
For Somo’s crypto whitepaper, Assessing the crypto conundrum, set to be released in early 2023, we spoke to Swissborg’s Chief Compliance Officer, Christophe Diserens. He highlighted the need for value and usability, and it looks like mainstream financial institutions will play a vital role in achieving this. “The more people who use blockchain, the more value it will have. Crypto also needs to be accessible and easy to use – improvements in technology will mean that anyone with a smartphone can make a transaction in crypto.”
Naturally, the lack of regulation causes major trust issues and it is something the crypto community has been calling for for some time and the UK Government has proposals in place for stablecoin regulation. Governance would reassure the wider financial services industry as well as individuals. Consumers invest when they know their money is protected – to a degree. Successive governments have prevented a run on the banks during financial collapse through the financial services compensation scheme (FSCS) that protects savings of up to £85,000 per authorised firm. Investors tend to accept the value of their investments can go up and down – they don’t expect them to be wiped out in a single stroke.
There is so much opportunity that can be fostered through crypto if we can get past the growing impression that it is too volatile to become a serious part of the global economy. Crypto is more than just a currency. It is a fundamental part of the Web3 decentralised infrastructure that allows for much more transparent and seamless global transactions, for example.
Permissionless, because blockchain contains the single source of truth for all stages of the transaction, all transfers are seamless and automatic, removing the need for intermediaries.
Everything from funding local initiatives through local ‘miners’ to companies raising capital through the sale of digital tokens, crypto and the Web3 infrastructure have the potential to transform how we finance projects, private and public, and by extension, transform our society as a whole. It’s no small ambition but we must get that infrastructure right if we’re to realise this vision.
Making crypto a usable part of everyday life, whether it’s for the institutional or individual investor, will be vital, with digital playing a key role. Automation needs to step in wherever necessary to meet the need for immediacy that crypto creates. From receiving alerts with market-sensitive information to AI-enabled chatbots on helpdesks, or analytics helping to maximise portfolio value, digitisation will be key to bringing crypto closer to the consumer, closer to mass adoption, closer to much needed scrutiny and regulation – and closer to our everyday reality.
