The Circle Of Life — Why Cryptocurrency Needs This Pain
Markets are bleeding — whether it's cryptocurrencies, Rolex watches, Amazon stocks or that ever so chic Bored Ape NFT — most of the world's speculators and investors are waking up to nasty red charts.
As much as I love watches though, I am not going to discuss the events in Silicon Valley or your local Rolex Dealer today.
Instead, I ponder the theory that this devastation could ultimately prove good for us, and further propel the adoption of cryptocurrencies and blockchain technologies? I believe so.
Take A Look Simba…
Current events remind me a little of the famous scene from the Disney classic The Lion King (1994)¹ where Simba’s father explains the order of the world they live in.
“Everything you see exists together in a delicate balance,” he says. “As king, you need to understand that balance and respect all the creatures, from the crawling ant to the leaping antelope.”
“But, Dad, don’t we eat the antelope?” Simba enquires.
“Yes, Simba, but let me explain,” Mufasa begins. “When we die, our bodies become the grass, and the antelope eat the grass. And so we are all connected in the great Circle of Life.”
So what does this mean for us? Well for starters it means that people need to understand that Crypto (I’ll use this to refer to cryptocurrency, the metaverse and blockchain technologies) is not some great reset which will sweep away banking and Wall Street. These companies are much too big, entrenched and important to just fade away (Unless you really want no pension!).
Crypto is fundamentally a new spoke in the same wheel we have had for thousands of years. This isn’t a criticism or a negative, I just feel the average investor needs their expectations realigned.
The incumbent finance system has many flaws; we have too many (fiat) currencies, international transaction fees are too high, there’s a lack of transparency, and money transfers are too slow… But there are also — shock horror!– some major successes and benefits too.
Whilst one should never rely on Telegram for wisdom, only today I was amused to read “Banks won’t exist in 50 years” being exclaimed to much applause to a group you could loosely call Investors. Whilst that concept might sound heart-warming and glorious, it massively trivialises some of the positives of modern banking.
After all, would you have been able to buy that house or even a car in cash outright? Do you have a social circle rich enough to finance your new factory? Do you sleep easily when you have a large investment in some unknown, soon to be a world-beating investment? I suspect not.
Banking Is Not The Enemy, and Wall Street Is Not Satan
Now for the purposes of this article, I am trivialising and simplifying some of the arguments to keep it succinct, but bear with me.
Banking provides loans, liquidity, overdrafts and a degree of governance to financial markets. Although these services can be exploited or leveraged for profit their provision is still essential to a capitalist economy. National banks and governments are then used to (mostly) provide the rules and regulations which keep the train on its tracks and to protect investors.
Without the finance sector working with the public sector; what do we get? Well, we get something like what we have now in crypto— the Wild West.
Altcoins (or dare I say shitcoins) have exploded in number and value², but some only last minutes before they are locked, liquidated or killed off. Investors have almost come to expect that in their scattergun of investments most will be a rug³ or die quickly.
It’s not just the small fry either…
Luna lost 98% of its market cap in a week⁴ — that's US$25 billion! It’s certainly not the first, or the last and whilst the crypto sector has survived bigger falls, there are still many pillars of this nascent ecosystem that even swamps would unfairly be compared to.
This just isn't sustainable; investors may love the risks, but play with fire enough and you get burned. I believe as more people get consumed by the fire there will be an ever-greater clamour towards regulation and financial frameworks — and I am all for it.
For crypto to truly empower, and for adoption to truly become mainstream its investors and supporters need to be able to sleep comfortably through the night, and we are just not there yet.
So… Whats This Circle Of Life Connection?
The end goal here is for businesses to raise capital, make a profit, and for people to have food on the table and money in their pockets –ideally enough for that longed-for trip to Bali! In short, we want good times for all!
For crypto to deliver upon its promise, crypto fanboys need to understand that it’s not here to replace the current banking system — it's not here to put Goldman Sachs et al. on the street — it's here to improve, expand, and ideally democratise finance. The only way it can do this, without burning us all, is to quicken the drive toward regulation, and accountability.
Well, in the short term there is probably going to be a lot of pain in the crypto space, the tech titans are stumbling⁵, war is raging and inflation is rampant.
After that? Well, I am still bullish, there is still the potential for a wave of new unicorns to come to the fore, and the technologies which underpin web3 might be a bit clunky, but they still have vast potential.
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: The Lion King (1994), IMDb
: Number of cryptocurrencies worldwide from 2013 to February 2022, Statista
: Crypto rug pulls: What is a rug pull in crypto and 6 ways to spot it, CoinTelegraph
: Luna Nosedives Under $2, Loses 98% Of Its Value As TerraUSD Struggles To Regain Its Dollar Peg, Forbes.
: Why tech stocks are bleeding right now, CNN.