Consolidating Crypto | Seeking Alpha


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We are entering the next phase of the move towards a more digital financial system.

Consolidation is taking place within the industry as regulators move forward to create the next regulatory system.

Within the industry itself, there has been a lot expansion in the last three years or so.

This expansion was aided by the grandeur of the Federal Reserve, as billions and billions of dollars were pumped into the financial system by the Fed.

In an effort to find places where this money could produce a return, a substantial amount of the funds went into the new “crypto” space.

With a total capitalization of less than $ 1.0 trillion in 2019, the total value of cryptographic assets increased to an all-time high in early November 2021, as the price of Bitcoin (BTC-USD) rose to just under $ 69,000. The total capitalization of the entire cryptographic industry was estimated at about $ 3.2 trillion at that time.

But of course, the price of Bitcoin has dropped and recently dropped to $ 20,000.

To get an idea of ​​the industry volumes here, we listened to Sam Bankman-Fried, CEO of FTX, who believes that only about 50-100 tokens have value.

The remaining thousands … have no value.

The market is adjusting.

Innovation is disruptive

But history has shown that innovation is disruptive.

New technology is going to change an industry, but it is unknown exactly what this change is going to be. In many cases, it is radically unknown.

For example, it is assumed that Bitcoin would change the way people made payments.

Its main feature is expected to be a means of exchange.

But, as Mr. Bankman-Fried, Bitcoin will never work for daily payments. It may not work on the required scale.

“Using Bitcoin for daily payments would be similar to paying for purchases with gold bullion.”

Like gold bullion, Bitcoin can serve as “an asset, a commodity, and a reserve of value.”

It cannot serve as a means to efficiently maintain daily payments.

There are places where Bitcoin can serve to help build a better financial system.

For example, one source that constantly appears in these discussions is the use of Bitcoin in cross-border payments. Using Bitcoin for this purpose can be done “cheaper, faster and in a more reliable way”.

Specific purposes, like this one, help make Bitcoin more acceptable and useful. These technologies can make the existing financial system more complete and more efficient.

And this is what happens when innovations spread throughout a system.

The interruption occurs. Some uses of innovation do not. Other uses yes.

But, the system has to solve this and this is what can create confusion within a system.

Part of this disruption is the fact that more individuals can become actors in the transition than those who are only interested in technology.

Some people may be “in the game” just to make money.

For example, Bankman-Fried estimates that two-thirds to three-quarters of first-time cryptocurrency investors just want to make money.

These people can be helpful. But, these people can also get in the way, they can divert attention, and they can be just “annoying”.

The Next Stage

The next step, however, is on how the industry consolidates.

This is what is happening now.

Bankman-Fried, in recent weeks, has been getting into the “rescue business”.

We read in the Financial Times,

“FTX CEO Sam Bankman-Fried has bolstered the $ 900 million crypto industry with his second bailout of a troubled digital asset company in so many weeks.”

The commentary reads as follows:

“The bailouts came as the crypto industry tried to restore confidence during a period of accelerated pressure on the price of digital assets like Bitcoin, which pushed even some of the industry’s largest market participants into distress.”

In the process, “Sam has become a lender of last resort.”

Mr. Bankman-Fried stated that “it was considered to play an important role in supporting distressed market participants even in cases where FTX was not involved.”

“I think that’s what’s healthy for the ecosystem and I want to do what I can to help it grow and thrive.”

And this is what happens in new and innovative areas of the economy as “transition” developments succeed or fail in the transition from the old to the new.

This is how the following structure is constructed.

A problem

There is a problem with this.

Consolidations can generate market power. Consolidations can generate monopolies.

As the industry has grown, large cryptographic exchanges have repeatedly intervened to rescue troubled projects or companies.

Crypto has been constantly sold as a space that can operate without great central control. His libertarian base is still present and still quite vocal.

Crypto, for many, wants to empower people.

But will cryptography live up to its claims of empowering people?

Bankman-Fried says the answer is still unclear.

Market power is very desirable and very achievable. All forms of monopoly domination are available at this stage of the evolutionary process.

The technology is currently expandable across platforms and networks.

Financial institutions are very skilled in building platforms and networks.

Technology leaders are also very skilled in building platforms and networks.

Existing financial institutions are a “entrenched elite” hoping to expand their reach.

The new tech giants play the same game. Just look at the examples of Google and Facebook and Amazon.

Therefore, size is going to be a big issue in the future.

rules

So one thing is missing … regulation.

Crypto and digital regulation and whatever you want to call it hasn’t really started.

And this is the next step.

Regulation is coming and the end result will depend on how everyone involved pronounces among themselves.

Bankman-Fried seems to be very aware of this. He seems to be very determined to talk to regulators and make things work.

This is not always the case in the industry. For example, Peter Theil, now at venture capital, is very libertarian and antagonistic to regulation and regulators.

Therefore, the future depends on who leads and who can work with each other. Or not working with each other.

Just as I argue that cryptocurrencies and digital will dominate the financial world in the future in one way or another, regulation will play an important role in how the industry works.

More regulation is coming, of that there is no doubt.

However, what just looks like the final regulatory structure is what anyone is guessing right now.



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