Building trust to move out of the crypto winter
“If winter comes, can spring be far behind?” That was the famous cry of English Romantic poet Percy Bysshe Shelley at the end of his celebrated poem ‘Ode to the West Wind’.
Over 200 years on and it’s a thought – or a question – that is relevant to the crypto industry today. The crypto winter has set in and could be with us for some time yet. Many industry insiders believe it could last for as long as 18-24 months, as the fallout from the collapse of FTX plays through in the courts as well as in the court of public opinion.
There’s no denying that crypto has taken a significant hit. As a whole market, cryptocurrencies are now worth around $1 trillion, down from a peak of $3 trillion. Bitcoin, which represents around 40% of the capitalisation of the entire market, currently has a value of about $21,000, where at its height last year reached $70,000. Even one of the world’s richest men, Elon Musk – or, more accurately, his company Tesla – booked a $34m loss from its Bitcoin holdings due to the chaos last year. If he can suffer from crypto volatility, it could surely affect anyone.
But it’s easy to get lost in negativity. The fact is that spring will come – and it’s down to the industry to accelerate its arrival as much as possible by redoubling efforts to build institutional and retail investor trust and confidence. In fact, we’re already seeing some tentative signs of a thawing – Bitcoin, for example, has rallied somewhat in recent weeks.
The real reason for some measured optimism that crypto spring will arrive is that the industry itself is highly conscious of the need to rebuild trust. There’s a determination to enhance brand reputation and bolster customer protection. These are ways to gain trust, which after all, is the ultimate currency required for any transaction.
We can see that there’s actually a great opportunity for players who take the right steps to differentiate themselves from competitors. We’ve already been seeing something of a flight to quality since the crypto winter began, with the Tier One exchanges and platforms gaining new customers as a result.
So how can the best crypto players maximise this differentiation opportunity and what steps should they take? Top of the list would be to obtain regulatory approval – that shows strength as a business and builds customer trust by meeting standards of governance. We have also seen some regulators such as the Financial Conduct Authority (FCA) introducing a register of crypto businesses, and Mica – a Pan-European crypto regulatory framework – is penned to come into effect next year. Being registered with regulators and/or frameworks could potentially send a signal of trust, commitment, and transparency to customers.
Education is another key step. Crypto is a complex world with plenty of myths and misconceptions around it. Clear and impactful education outreach that helps investors understand crypto better can go a long way to bridging the trust gap.
If these are table stakes, the third major point is for crypto players to take steps within their transaction infrastructure to reassure customers that their money is safe. By safeguarding customer funds, where individually addressable wallets can be opened in real-time with more flexibility and security of their transactions on/off ramp can give customers an overall better experience.
But will we see more crypto players partner with banks to explore ways of innovating and continuing to further protect customers? Certainly. We’re already seeing more crypto players exploring how to leverage traditional banking infrastructure in order to move more into the mainstream. These crypto-bank partnerships could be key to strengthening customer confidence and moving out of winter.
There’s another reason to be confident, however. And that’s quite simply because crypto exists and can’t be uninvented. The future of money is digital, and crypto is an integral part. Just as the underlying technology behind crypto, blockchain, has an enormous role to play in the future of financial systems too. Compared to traditional clearing systems, blockchain has the potential to be a much faster, more efficient and cheaper mechanism to move value around the world. Offering a real-time, irrefutable and transparent public ledger, blockchain could be the golden ticket in the payment and clearing systems of the future.
Yes, crypto is volatile. Just as the weather is changeable. But Shelley was surely right – it won’t be winter forever and better times will come.