Over the past decade, the cryptocurrency space grew from a small group of individuals mostly made up of techies experimenting on new technology to an entire ecosystem comprised of billion-dollar startups with mass media attention. As is the case with burgeoning industries, opportunities abound in the cryptocurrency space and the chance to profit from using blockchain technology to build game-changing products has attracted many entrants to the cryptocurrency community. Others simply jump in with no reserves and pick from the numerous assets available for investment.
The cryptocurrency sector is riddled with risks and a number of these have made it unnecessarily arduous for non-professional participants in the industry to achieve their investment goals. At the same time, as the crypto market peaked in December 2017 and then viciously corrected throughout 2018, the focus of retail investors, market makers, ICOs and developers shifted to the narrative of ‘institutional investment from Wall Street, family offices, hedge funds and other venture capitalists’ patching the massive hole that was sucking all the value from the crypto market. Now that an entire year has passed and the institutional money either is not there...or is unnoticeably present via covert over-the-counter (OTC) purchases, the market still has not recovered.
It’s safe to say that the majority of retail investors and a good number of ICOs and crypto-startups placed their hopes in the arrival of institutional investment and the eventual approval of a Bitcoin exchange-traded fund. And herein lies the problem. When these expectations come to fruition the market will pop, in a good way that is but institutional investment is not what the market needs. The 2017 bull run was primarily fueled by retail investors and their absence explains the current market malaise. What the crypto-market is missing is incentives to bring retail investors back and to also entice new investors who are not familiar with digital assets. Most people say that it is too difficult, time-consuming, confusing, and risky to invest in cryptocurrency and while a number of incredible projects for easy crypto investment launched in 2018, there is still much room for improvement.
The crypto-sector still needs to work on reducing the risks faced by investors and investment platforms that are mobile, blockchain-based, data-driven, and convenient will make investing in crypto easier for all and this is what will slowly bring the market back to profitability.
The Crypto Market Needs More Retail Investors Now, Institutional Investors will follow
As mentioned earlier, retail investors were the driving force behind the 2017 crypto bull run. New investors poured funds into the market, existing holders told friends and family about their gains, and the rapidly expanding number of cryptocurrency influencers peddling their daily messages to followers also contributed to the euphoric atmosphere with encouraged a mass influx of new investors. As prices skyrocketed, many investors gleefully overlooked risks such as frequent hacks and flash crashes. Knowledge requirements like knowing how to use a trading platform, crypto wallets, block explorers and basic technical analysis were sidestepped by many and this eventually led to some investors having to learn the hard way as they fell victim to these risks.
As prices dwindled in 2018, the number of retail investors tapered off to a mere trickle and many lost interest and exited the market when the risks and accompanying difficulties in crypto investing became more obvious throughout the 2018 bear market. Currently, confidence in the crypto market remains low as inexperienced investors who made investment choices based on false data, hype, YouTube influencers, and Telegram signals lost funds and consider the entire crypto market a scam that they will never participate in again. This occurrence highlights the fact that risks and challenges in the crypto market have an effect on the number of retail investors that actively participate in the market.
That being the case, it is reasonable to approach the problem by making it easier and more secure for individual investors to participate in the cryptocurrency market. At the same time, investors have learned that fake news and false data dominate the industry and that many exchanges and other market makers were (and continue to be) in on the job. For the inexperienced investors, laying hands on reliable data to inform investment choices is difficult and in the cryptocurrency market it is nearly impossible to be certain about the accuracy of published financial data as some of the platforms in the space have been known to churn out fake data for various reasons. It is an open secret, that exchanges faked volume data to appear to have more liquidity and users in order to attract even more users. For instance, the data from the order books of some Korean cryptocurrency exchanges cannot be trusted as there have been reports of wash trading and faking of trading volume. Some exchange executives have, in fact, been convicted for the crime.
The problem with access to reliable data is not limited to forged figures. Therefore, it is necessary for investment platforms to provide verifiable data that shows investors that their investment decisions are built upon reliable data and the venue where they deposit their funds is ethical and secure. If a number of such platforms existed, then retail investors would return to the market, and the institutional investors, who are unlikely to let good investment opportunities pass them by, would undoubtedly jump onboard. This way, the previously unfruitful clamor for institutional investors in the cryptocurrency market would eventually materialize.
Reducing Investors’ Exposure to Risk and Making Crypto Investing Stress-free
Crypto investors inevitably have to use a managed platform to make purchases, unless they are using a peer-to-peer or decentralized exchange. For this reason, more emphasis should be placed on building secure, user-friendly platforms with reliable data for investment decision making.
A navigable user interface is invaluable for investment platforms dealing with largely inexperienced and non-tech-savvy customers. It should be easy for novice investors to use online platforms to purchase investments products. Unfortunately, it is commonplace to find crypto trading platforms with complex interfaces and sometimes even moderately experienced traders need a considerable amount of time to find their way around most crypto exchange platforms.
Even when provided with genuine data, many investors have difficulties making meaning out of the sea of trade data and other statistics available on most trading platforms and Roobee tackles this issue by providing users with aggregated financial data which is recorded on a blockchain.
Some Investment Platforms Are Beginning to Solve the Problems
It is worth pointing out that some platforms have made improvements with regards to security, user-friendliness, and the offering of multi-sector assets. While exchanges like Coinbase and Changelly are easy to operate and suitable for new investors others like Binance have been lauded for the number of crypto assets on offer as well as their response to attempted hacks and other security breaches. Platforms like Roobee and Robinhood differ in their offerings as the wide range of investment products from different sectors reduce risk as investors are not solely exposed to the cryptomarket. Apart from crypto assets, products like stocks, ETFs, REITs and venture capital investments will be made available to all users. Since these are mainly investment products restricted to accredited and institutional investors, customers will be getting access to products they would otherwise be unable to invest in. In essence, what the cryptocurrency market needs more of is products that reduce investors risk by arming them with reliable financial data, algorithmic-assisted trading and the opportunity to build a balanced portfolio consisting of assets from various classes.
Furthermore, the integration of algorithm-assisted trading and portfolio development will assist users in making smarter investments as they are programmed to evaluate information such as the risk tolerance and investment time-horizon of a potential investor. In particular, developers would do well to equip investment platforms with statistics and tools which show the real profitability of each investment tool. If the history of such investments were recorded on the blockchain as proof of performance and ownership, then perhaps more institutional and retail investors would be drawn to the market.
Based on the evaluation results and other factors affecting the markets, investors could receive guidance on which investment products to go in for and the appropriate weight each should carry in a portfolio. Augmenting the trading skills of users with AI-assisted trading will make trading less complicated and attract more investors (including those wary of investments due to their lack of investment knowledge). The crypto market stands to benefit from these technology integrations in the long run as the additional investors would lead to greater trading volumes and liquidity.
Generally, blockchain-based mobile investment platforms appear to be a sensible solution to the difficulties faced by retail investors in the crypto and venture capital markets. Crypto was created by people and it will require a solution provided by the same people exuding the revolutionary, decentralized belief in one’s right to monetary self-sovereignty. The crypto community should stop looking toward institutional investors and Wall Street as the savior that will end the current market malaise, rather, the sector needs to focus on the provision of products and services that remedy the headaches investors regularly experience.