How to grow the cryptocurrency market. Here are the facts
Despite all the hype, the adoption of cryptocurrencies is still very small. However, there are influential people and institutions from the traditional world that may drive the acceptance and usage of cryptocurrencies on a global basis.
There’s so much in the media at the moment about cryptocurrencies. It makes us wonder how much it has actually caught on, and how many people own, trade or shop with cryptocurrencies.
Some people believe that cryptos represent a threat to the entire world banking system and even to governments. Others talk of bubbles that are about to burst. Aswath Damodaran, who teaches finance and valuation at the New York University Stern School of Business, says, “Bitcoin has taken over the public imagination, but it’s a very small phenomenon.”
Many start-ups seem to predicate their success on the fact that there will be “mass” acceptance of cryptocurrencies, and therefore mass acceptance of whatever their product or service happens to be. One of these is Bit.Team, aiming to launch a decentralized crypto exchange and aiming to reach as wide a target market as possible.
Who’s right? What is the current situation of acceptance and usage and what is the likelihood for much wider adoption? And what should start-ups like Bit.Team do to access and grow the market?
The argument for widespread adoption of cryptocurrencies
Crypto enthusiasts can list the benefits of crypto and its underlying blockchain technology.
· Peer-to-peer, permissionless transactions without the need for a third party or intermediary
· Speed and global reach
· Transparency in transactions, while also being secure and pseudonymous
· Opportunity to capitalize your start-up through crowdfunding, rather than having to go through venture capitalists or angel investors
· Opening the opportunity for anyone to trade on exchanges and to be part of investments without first having to be “high net worth” individuals
· Financial stability for people in countries with unstable currencies (Venezuela and Zimbabwe are good examples of this, as is Turkey. A Statista survey in 2018 showed that up to 18% of the population of Turkey owned cryptos.)
What is true for all cryptocurrencies is that they are borderless and don’t need banks. Who would want those characteristics for their financial transactions? Probably not everyone. But for those who do, this is an option.
Estimates of adoption of cryptocurrencies
It’s difficult to know exactly how many individuals hold cryptos. We have to rely on estimates from surveys or perhaps on the number of wallet users. Neither method is really accurate.
Number of wallet users
According to Statista, there were over 28 million blockchain wallet users in September 2018. This represents significant year-on-year growth:
· The number of wallets in September 2015 was 4.4 million
· This more than doubled to just under 9 million in September 2016
· It nearly doubled again to 17,2 million in September 2017
· A further 11 million wallets were added in 2018.
This growth is certainly an indicator of wider adoption of crypto but doesn’t give the number of individuals involved, as many own more than one wallet.
Number of crypto owners according to surveys
An online survey undertaken by CryptoNinjas in March 2018 polled nearly 30,000 people in the eight largest crypto markets: the US, UK, Germany, Brazil, Japan, South Korea, China and India. This survey was looking only at internet users, rather than the general populations of these countries, but the numbers are useful:
· 3 out of 4 people were aware of cryptocurrencies
· 7% of the total sample owned cryptocurrencies.
· The country with the highest percentage (11%) was Japan, followed by the UK and USA, both at 9%.
· China was lowest at 3%. However, if it is true that 800 million Chinese are internet-users, this 3% would translate into 24 million crypto owners!
Of some concern to those hoping for mass adoption of cryptos is that only about 4% of those who didn’t already own crypto said they were likely to buy any in the next 6 months. Put another way, this means that about 96% of people who currently don’t own crypto don’t intend to buy any.
On the other hand, it’s encouraging that three-quarters of the people were at least aware of cryptos. This figure was as high as 87% in South Korea and 83% in Japan. Even in countries where awareness was lowest (India and the UK) more than 60% indicated awareness.
A Finder.com survey in February 2018 showed that nearly 80% of Americans were aware of at least one type of cryptocurrency. Unsurprisingly, Bitcoin was the best-known.
The same Finder.com survey highlighted the following reasons why over 92% of Americans have not bought any crypto:
· 40%: Not interested or see no practical need
· 35%: Too risky
· 27%: Too difficult to understand
· 18%: It is a scam or a fraud
· 16%: Waiting for the bubble to burst
Who is buying crypto and what are they buying?
Overwhelmingly, this is a millennial’s game. Nearly one in five (17%) of millennials own crypto, compared to just 9% for Gen X and 2% for baby boomers.
Overall more men than women seem to be involved in crypto, although this is more pronounced in Western countries than in Eastern countries.
Those with higher education levels indicated more awareness, more actual knowledge of how cryptocurrencies worked and were more likely to be owners of crypto than those with low levels of education.
In the USA, nearly 5% of the population are believed to own Bitcoin. Less than 2% own Ethereum. Other coins like Bitcoin Cash, Ripple and Cardano, despite having plenty of media coverage, are not making much headway. Here are the stats from the Finder.com survey:
Other than Bitcoin and Ethereum, everything else is under 1%.
Clearly, all the thousands of currencies in the market will have to work very hard to gain traction and attract buyers.
Level of adoption according to market capitalization
A sobering thought for those hoping to take over the world is the size of market capitalization (the market value of the assets).
According to CoinMarketCap, during October 2018 there were 2056 listed cryptos, trading in 209 exchanges. The total market cap was just over $210 billion. This is a quarter of what the market cap was in December 2017. The biggest exchange was Bithumb with a reported daily trading amount of $1,2 billion.
This must be compared to the traditional stock market, where 17 of the 79 exchanges listed by StockMarketClock have market caps of over a trillion dollars each.
· The New York Stock Exchange, on its own, currently has a market capitalization of over $24 trillion.
· It is followed by the NASDAQ at nearly $12 trillion and the Tokyo Stock Exchange at $6.1 trillion.
· The Tel Aviv Stock Exchange has approximately the same market cap ($215 billion) as the entire crypto market.
As a counter to this, it should be noted that crypto exchanges may be more profitable than traditional financial institutions. For example, the crypto exchange Binance recorded a profit of $200 million in Q2 of 2018. In the same quarter, the Deutsche Bank, one of Europe’s leading financial institutions, recorded only $146 million.
What will lead to widespread adoption of cryptocurrencies?
Tokenization of real-world assets
According to Bloomberg, the global stock market is worth $80 trillion. However, there are barriers to entry and costs are high. If some of the assets could be digitalized and tokenized this would mean that even small investors would be able to own all or fractions of a whole asset. (Read more about how this works here.)
If this tokenization could happen, the number of crypto owners and users would soar, and the crypto market cap would be in the trillions of dollars.
According to The Capgemini World Wealth Report 2018, wealthy people are becoming increasingly interested in cryptocurrencies. The report says that 29% of high net worth individuals expressed an interest in buying or holding cryptocurrencies and another 27% said they wanted to know more about them. About half of them were unhappy at how little they were being told by their wealth managers.
Venture capitalists are becoming interested. According to Crunchbase, VCs invested nearly a billion dollars into blockchain and crypto-related projects in 2017. This figure had been surpassed by the first quarter of 2018.
Banks like JP Morgan, Morgan Stanley and Goldman Sachs have their own blockchain projects, including a planned bitcoin trading desk — and they apparently invested into Bitcoin when the price dipped in 2018.
Even the George Soros Fund Management has been reported as having the approval to trade cryptocurrencies.
Global influencers — do they know something about cryptocurrencies that we don’t?
The surveys we’ve quoted show that adoption is still in the early stages.
However, there are some really interesting people and institutions investing heavily in this space. Do they know something the rest of us don’t? Perhaps.
And perhaps the wider adoption of cryptocurrencies, so wished for by crypto enthusiasts, will actually happen because of the global influence of these people from the “traditional” world?
· The New York Stock Exchange: Partnering with Microsoft and Starbucks to create a crypto trading platform.
· The Bill and Melinda Gates Foundation: Using the Ripple protocol to assist with payment services for the unbanked.
· Steve Wozniak (co-founder of Apple): Now a co-founder and technical lead in a blockchain investment company.
· The Winkelvoss Twins (Facebook): Invested $11 million into Bitcoin in 2013, when the price was $120. This makes them Bitcoin billionaires when the price goes beyond $10,000. They have apparently not sold any of their Bitcoins.
· Richard Branson believes that Bitcoin is an economic revolution. He has held an annual blockchain summit on his private Necker Island, and is happy to accept payments in Bitcoin for his Virgin Galactic space travel project.
· Bill Clinton: The keynote speaker at the 2018 Swell conference, hosted by Ripple. It brings together payment, technology and policy experts in the global payments industry.
· IBM: Partnering with Stellar and the Lumens token for cross-border payments.
· Alibaba, IBM, Mastercard and Bank of America: They top the charts for the number of patents they have filed for blockchain-based technologies.
· Amazon Web Services (AWS): Partnering with QTUM to make it easier for businesses to implement and utilize blockchain technology and especially smart contracts.
· Yale Endowment: $400 million has been invested in crypto asset funds.
These people and institutions are reaching a market far beyond what is possible in the narrow crypto community.
Bit.Team decentralized exchange — what are the lessons?
Bit-Team aims to offer a convenient and functional P2P exchange platform. Regardless of whether cryptocurrencies form part of a niche market or If there is widespread adoption of cryptocurrencies, this could be a very profitable business.
While this sounds very simple, an exchange of this nature is in a very competitive field of over 200 existing exchanges. Its own internal BTT token is in competition with over 2000 other coins and tokens. And, as we’ve described in this article, there is a relatively small target market.
What, then, should they do as they approach an ICO?
The focus should be on marketing, marketing, marketing — to VCs and Angels, to existing crypto-supporters, and to new groups that are being opened up by the global influencers we described earlier. Perhaps they should be giving attention to the market of tokenized real-world assets?
If cryptocurrencies are to be a real part of the future, then crypto exchanges — and especially decentralized exchanges — will provide critically needed support. Bit.Team can be part of this.