Crypto

Will 2023 be the year of the three Rs for crypto?

Tuesday, January 17, 2023 6:44 p.m.

Vj Angelo

through Vj AngeloCEO of Inspira Heritage

It’s time for the crypto community to take a moment of introspection and get back to school.

In advocating the adoption of the “three Rs”, I am not suggesting reading, writing and arithmetic (I have always found it amusing that education is promoted phonetically rather practically with the three Rs). What I mean is research, income and returns.

These Rs are central to the success of any business, from inception to business plan, raising capital and execution. For investors, they are at the heart of any successful capital investment. Unfortunately, the crypto market has been negligent in applying these principles to its operations. As a result, the market has suffered and continues to suffer a life-threatening practical and existential crisis.

Before we delve deeper, it’s important to understand the cryptography issues that brought us here. It is ironic that crypto falls prey to the exact behavior, of traditional finance, that the birth of the market was meant to solve.

Crypto pioneers spoke out against the global financial crisis that began in 2007 and which in many ways still affects us today. The financial markets never properly addressed the problems that created the GFC, they simply swept them under the rug by half-heartedly printing money and regulatory band-aids. After the Greek and European crisis of 2010-2012, Bitcoin began to emerge and gain notice from the banks, governments, and treasuries that had caused the GFC conditions and the resulting ongoing crises.

Crypto has become another financial product plagued by structural, behavioral and regulatory issues, identical to so many financial products over the centuries.

Crypto created an almost miniature version of the problems that created the GFC; an interdependent financial system of high-risk practices and products, a set of behaviors designed to take advantage of market manipulation and very short-term gains by a few participants that left the community most at risk.

Inexperienced and, I’m afraid to say, ignorant and lazy investors have made a lot of money at various points in the crypto market. However, as is almost always the case, they almost certainly lost those gains and more along the way.

The fight against regulatory interference has been ongoing for a few years now and while I share the view that “why would we trust the regulators and legislators who nearly brought down the global economy”, regulatory oversight and “interference” must be considered in a broader context and with more nuance.

Regulators learn lessons and often rectify mistakes they find. Unfortunately, as a species we are slow to learn and often dismiss the behavior of previous generations because the current generation always knows best. As the traditional and crypto markets welcome young people, there is always the risk that they will throw out the baby with the bathwater.

Younger and younger traders and analysts, with big salaries and bigger egos, are rising through the ranks, pushing back the experienced and capable ancestors and with them the institutional memory of lessons learned from past mistakes. As a result, we are prone to making these mistakes repeatedly. Crypto is doing precisely that right now.

In the late 1990s, the arrogant view of the US and UK governments was that financial markets were sound and well managed by very smart and highly skilled people. Rocket scientists and MBAs now ran these complex, intertwined markets with more complex products. The economies of the world were in good hands. The best thing governments could do was get out of their way and let them make a lot of money. Politicians would benefit from strong savings, big tax revenues to spend on pet projects, and healthy expenses as non-leaders when they retire. As a result, the thin end of the wedge came with US permission to merge Salomon’s and Citibank into the Travelers group. As part of the regulatory and legislative change to enable this merger, the Glass Steagall Act was removed.

Glass Steagall was an act of Congress after the Great Depression that separated investment banking from retail banking. Banks were no longer allowed to use capital reserves belonging to ordinary depositors as part of their balance sheets to support their investment banking operations. It took less than a decade for a financial crisis to emerge that eclipsed the Great Depression and nearly brought the global economy to a complete crash.

The outcome of subsequent investigations by the U.S. Congress and other governments resulted in new legislation, effectively bringing back Glass Steagall in a new legislative form called Dodd-Frank, after the two representatives who conducted the investigation and then introduced legislation to address market risks.

Now, unfortunately, just fifteen years later, the pressure to remove all regulatory reforms is growing and the British government, led by an ex-Goldman-Sachs banker, is already seeking to undo all the safeguards put in place.

So what was the purpose of this brief history lesson and one of many that really need to be studied? Crypto is plagued with all the same mistakes and errors and it is hard to avoid the irony since crypto was born to prevent or circumvent the very people and behaviors they are now guilty of replicating. This brings us back to the fundamentals of any trading environment, the three Rs. Search, income, returns although I think we have to do the four Rs. Search, income, returns and regulation. That last R is there because society is trying to protect the weakest among us.

Protecting investors from smart, unscrupulous and malicious actors is necessary for the proper functioning of any market. Like any ecosystem, its strength depends on its weakest link. The weakest link in crypto is the uneducated gullible investor and sadly there are far too many of them.

The other side of regulation is that it protects the economy from the weakest link. Very often, it is the foolish investor who loses everything who is the first to cry foul and trigger regulatory and criminal investigations. With proper oversight and regulatory practices, both parties can play the game knowing the rules and those who don’t are not allowed to play. It’s time for crypto to become a mature economy and develop all the potential it offers without the constant volatility and crises. So how can we achieve this?

Research

Both sides of the equation, investors and companies, must adhere to this ground rule.

As investors, research the investment you are making thoroughly; the business model, team, competitive landscape, target market, business model and research in a long-term perspective – quick money can come fast but it can go even faster. Make sure the investment has a long term sustainable business model, a business that constantly requires reinvestment with no income to keep it going will not last long and your investment will almost certainly be depleted.

I know the phrase “long-term” is contrary to investing in the crypto market, but recent events should show that a healthy long-term return is better than a large short-term return that is disappearing. as quickly as it came.

Business owners must follow the same rules. By doing so, the ability to raise capital becomes self-sufficient, which makes life much easier.

Revenue

There really shouldn’t be much explanation needed here, but the number of business models without a clear path to revenue that have raised or sought to raise capital through ICOs or their newer equivalents is quite extraordinary. .

Revenue should be the starting point of any investable business model for investors and business owners.

Return

Returns must come from business activity and as a share of the revenue success of the business model and its products. Hoping that people will buy an asset just because you did and where there’s a big marketing story forcing that asset to go up in value with no real underlying value or connection to the business is not a sustainable investment model. There is a place for utility tokens, but as such a utility, providing real applications and uses. Raising capital needs to be separated from a utility token that is part of the business model. The token should be for those who will use it for their purposes, not to induce unrelated parties to invest.

Regulation

This is perhaps the most controversial item on the list. Let’s put it this way, if we think of the markets as a game with a financial reward or outcome, like any professional sport, it cannot be played without rules and umpires or referees.

We’ve all had a flutter about our favorite sport. Would we be happy to do this if there were no understandable rules or no one to enforce them? How many times have we heard of a referee or umpire misapplying the rules to the detriment of our team or the sport itself?

Investing is the same game. We need rules to protect players, the people who support them financially, and all the companies and small players who are out there to see big or small returns.

It is time for the crypto market to embrace the four Rs to ensure the long-term viability of the market, not to mention a future based on strong growth as a competitor for an alternative to traditional finance.

#year #crypto #Crypto

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