There Is Room for Improvement: Ways to Strengthen the Crypto Industry
The current crisis is the ideal opportunity for crypto to extend its influence, but the digital asset market has to get firmly on its feet first.
A month ago, the world economy suffered a major downturn, which caused the price of bitcoin (BTC) to drop in the abrupt manner not seen for seven years. This drop sparked lively discussions, as some analysts expressed doubts about the potential of the token as an asset resistant to financial turbulence. For the most part, experts believe that the turmoil caused by the COVID-19 brought about the drop, with investors encouraged to liquidate their assets frantically. It was also suggested that the fault was not that of Bitcoin itself but the overall tendencies of the traditional financial market and the common pessimistic sentiment among investors.
This frenzy has had a devastating effect on exchanges. Trading leader BitMEX saw a record number of liquidations for the year, which caused the exchange to go offline for more than twenty minutes. In the meantime, it took only three days for the balance of Deribit’s BTC Insurance Fund to be cut in half.
Trying to analyze the reasons behind the crash can be fascinating, but we do not want to investigate that. Instead, it is much more important to initiate a discussion about the ways to improve the crypto market and reduce its exposure to similar events. There are several main points we want to draw attention to. Among other things, we want to point out what the exchanges can do on their part.
Crypto to Masses!
First, we need to educate ourselves within the crypto community and expand outsiders’ perspectives on crypto. When we speak of commodities, the volatility of price seems justified because it is rooted in the pattern of supply and demand, which in turn, is determined by the situation on the market and the world at large. But when we talk about cryptocurrencies, the reasons behind volatile prices are different. They lie in the fact that crypto is still not easily convertible to cash, and the culture we have created as investors is not a good fit for the new market. Watching larger fluctuations in prices may be a thrilling experience, but if our main desire is to resist economic turbulence, we need greater confidence in our statements about the worth and prospects of digital assets.
We may assume that the traditional financial system ¾ centralized and hierarchical ¾ triggered the latest crisis. When our current economic system starts to come apart at the seams, Bitcoin will be a lifesaver, just like Satoshi Nakamoto suggested.
Yet, it was not possible to completely avoid the frenzy. Additionally, the general inclusiveness of the asset is backfiring. We see striking contrasts among investors — some players have little understanding and no strategy at all. This situation also prevents us from arguing that the crypto market has matured enough. My point is that we need to cooperate in order to educate ourselves and others if we want to gain confidence as crypto advocates, and exchanges should play a major role here. Now, with Bitcoin showing bullish signs again, it is the perfect time to highlight the strengths of digital assets so that everyone can feel the need for change.
Exchanges Need More Updates
The second thing we need to do is improve the functionality and infrastructure of exchanges. Quality attracts traditional investors first and foremost. The efficiency of both order-matching systems and liquidation engines contributes to the speed and frequency of transactions and helps to avoid a backlog. Innovations in the perpetual contract market are also called for, and exchanges are increasingly allowing for settlements of crypto futures in Tether (USDT) instead of Bitcoin. This allowance helps reduce risks and avoid superfluous liquidations caused by high volatility. Furthermore, we need more innovative solutions to let experienced investors be independent of the insurance fund and have more command over their own risk exposure and strategies.
Market Strong
Finally, to build a strong crypto market, we should pay attention to not only where and how we trade but also the portfolio of assets that we can build. There are many crypto tokens to choose from, but it appears that actually creating a diversified portfolio is a demanding task because the prices of cryptocurrencies have the tendency to move in tandem. Stablecoins, which are pegged to fiat money and commodities, hold some promise here, but they have little potential for growth. What is much more promising is tokenizing commodities, which could become the main driver of crypto diversification. As soon as this problem is solved, the crypto market will attract more traders to invest in digital assets.
Final Words
We have yet to achieve a new economy where crypto will enjoy higher liquidity amid newly tokenized assets. The global digital asset market will bring in retail and institutional investors, further building its resilience. Now we have arrived at the climax of the global economic transformation process, and as the world is striving to cope with the economic meltdown, the crypto space cannot stand still either. The task now is to search for solutions that will help the crypto economy survive and thrive.
