Innovation in the Crypto Industry — Opportunities, Risks, and Biases
From the spread of the coronavirus disease pandemic in 2020, the Federal Reserve entered a frenzy of money printing, a large number of over-issued dollars led to a further increase in global inflation. This unprecedented flood of liquidity has already appeared in some countries as a warning. 10-year U.S. bond yields remain high at 1.5%. The certainty of global financial policy turning and interest rates increasing in the medium to long term is high. Global inflation inevitably becomes the biggest risk and hidden danger for global financial markets in the next two years.
The continued surge in inflation and hawkish Fed expectations have accelerated the dollar’s recent rally. The dollar rose 5.9% for the year. Wall Street is assessing whether rising inflation will prompt the Fed to accelerate interest rates, and several banks, including HSBC, Citi and JPMorgan Chase, are predicting further gains for the dollar. But such a dollar market actually presents high riskiness and vulnerability, and the coming year may be the best time for the market to sell the dollar.
South Africa’s new coronavirus variant Omicron drove the US dollar index further up, with DXY breaking through the 96 mark and continuing to set new highs. The following year of the outbreak, global capital expectations for a Fed rate hike strengthened further. The price of gold returned to a six-month high and the U.S. Consumer Price Index (CPI) rose 6.8% over the same period in November 2020 is the largest annual increase since June 1982. Risk aversion in the capital is continuing to rise, with a cloud of economic downside looming over global capital.
America M2 money supply (a measure of the amount of money in circulation, including physical cash, cash equivalents, and liquid bank deposits) is accelerating sharply. There is a high-intensity correlation between money supply growth and inflation. In global financial markets, the policy response to rising inflation will eventually lead to an oversupply of money.
As we enter the post-epidemic era, global inflation will inevitably become the biggest risk in the next two years as vaccine development accelerates, economic recovery accelerates, and liquidity is expected to turn the corner. The Bridgewater team at the world’s top hedge fund believes that “global financial markets are being affected by one or more “bubbles” and that the bubble is probably more severe now than most investors realize.” Too high and too fast interest rates are the enemy of bubbles, and all signs point to the imminent revaluation pains of financial assets.
Bitcoin Strengthen the Correlation with U.S. Stocks and Capital
Bitcoin, a revolutionary digital asset that was once hailed as digital gold. Gold and the U.S. dollar index as its correlation targets in past development phases, respectively. But current trends show that Bitcoin is inevitably taking on a U.S. stock persona.
There are many reasons for the 10-year slow bull run in US stocks, such as the trading margin system and the rapid development of technology in the US, but the institutionalization of the market, the “HODL” attitude of investors, and the continued money printing by the Federal Reserve are the fundamental reasons behind this. It is this effect that Bitcoin is best suited to address and illustrate the long-term time scale of the Phillips curve.
1. The institutionalization of bitcoin is becoming apparent. More and more “whales” are entering to hold bitcoin. Tesla and MicroStrategy as the leading Silicon Valley technology companies and Grayscale as the leading large financial institution entering the crypto market. Most of the bitcoin began to be held by institutions and the more the “HODL” group grows, the less bitcoin is liquid in the secondary market. It is difficult to sustain the evolution of a crypto bear market phenomenon similar to the one that collapsed for several years after the end of the 2015 bull market, and people expect that BTC will be like US stocks, accumulating energy again to reach new highs after each plunge adjustment.
2. The second manifestation of Bitcoin’s institutionalization is the change of ability to take over. The two panic plunges in 2021 were met with strong institutional takers at key price points, and this ability to take over the market is unmatched by the retail market, which used to be dominated by small and medium-sized investors. El Salvador’s Bitcoin legislative experiment has also allowed a growing number of small, financially marginalized countries to begin exploring the possibility of escaping the control of the U.S. dollar. No longer counting short-term ups and downs, this is a fundamental-level improvement in bitcoin price stability.
3. The passage of the first BTC ETF in the US is significant. The most obvious impact is that Bitcoin is gaining the “embrace” of traditional investors. For years, the SEC’s ambiguous attitude towards BTC finally got a “seal of approval”, which is undoubtedly crucial for the future of BTC to be more widely recognized.
4. The $25 million raised by DCG in 2015 was already one of the largest funding rounds in the crypto market. By now, with companies such as Polychain, a16z, Multicoin and others managing hundreds of billions of dollars, numerous hedge funds planning to invest a portion of their assets in the crypto market over the next five years, and even pensions becoming available for direct purchases of cryptocurrencies, the allocators of capital can no longer ignore the investment opportunities in the crypto market space in a negative interest rate environment. According to Dove Metrics, $8 billion of the 423 investments in the crypto world in the third quarter of 2021 alone were private investments, nearly half of all investments ($17.8 billion) since the beginning of the year and more than the previous six years combined.
The U.S. stockization in the Bitcoin process is just one small step. Its convergence with riskier assets is also starting to show signs of disintegration. bitcoin entered a deep pullback in December, diverging from the U.S. stock index for the first time since June. Some speculators pulled out of the most volatile corners of the global market, dodging central banks’ tapering stimulus measures, folding to make bitcoin’s inflation-fighting story less attractive.
Global Regulatory Tightening, The Confront Between Normalization And Prohibition
Since its inception, digital assets have been wandering in the gray area of national laws due to its special anonymity, and companies engaged in digital assets have been closely watched by national financial regulators. Cryptocurrency is not a panacea, and like any new technology that arises, criminals can use it as well. In the context of an industry with rapidly expanding prices, frequent money laundering incidents, and increasingly frequent extortion and hacking incidents, tightening global regulation is an inevitable future trend.
America, as the current center of the crypto industry, has an open and aggressive attitude towards cryptocurrencies corresponding to the exploration of strict tax regulation of them. Going forward, an effective regulatory framework will ensure that the U.S. can strengthen its dominance over digital asset trading and investment practices while tax revenues grow. More than 50 countries are already planning to include digital asset trading in their regulatory frameworks and establish related financial licensing and registration systems. The UK joined the US in issuing a statement to jointly strengthen the regulation of cryptocurrencies and comprehensively stifle their channels to serve illegal activities.
Nowadays, cryptocurrencies have benefited from the lack of clear regulatory and enforcement rules, because no one wants to pay more taxes. Tax laws in the crypto market are further complicated by industry-specific profit-taking methods such as airdrops and forks. The cost of writing off complex on-chain transactions, and gains from mint taxes or NFTs. The inability of decentralized exchanges to provide standard financial reporting will also make it particularly difficult to track and consolidate taxable income on an annual basis — cryptocurrencies will become a tax accounting nightmare in the future.
In contrast to the open Western markets, developing countries, led by China and India, maintain a continued high-handed attitude towards cryptocurrencies. If the Indian crypto ban becomes law, India will be the first major economy in the world to make it illegal to hold cryptocurrencies. And the ban issued jointly by ten top Chinese ministries has caused a large number of mining companies and blockchain practitioners to move overseas, and the entire crypto market has entered a deeper state of de-Chineseization.
Dubai has opened the market to the crypto industry. Cryptocurrency has signed a partnership agreement with the Dubai World Trade Center Authority (DWTCA), joining its first global crypto asset ecosystem. The next crypto industry hub may be created in Dubai as the industry’s leading and well-known exchanges, led by Binance and AEX, are converging on this city.
Metaverse, GameFi and NFT Lead Crypto Industry into Global Perspective
Blockchain and Internet fintech are once again intermingling. Artificial intelligence (AI), augmented reality (AR) and virtual reality (VR) concepts once set the global capital markets on fire. The fusion of physical reality and virtual technology has given the emerging technology community a brand new calling card: METAVERSE.
Generation Z’s deep reliance on the Internet makes online interaction no longer limited to the visual and auditory. As the aborigines of the Internet. Most of the new neo-humans’ lives and even the transmission of value ideas and consciousness are precipitated in the network. As a large-scale global social platform, Facebook announced its name change to Meta on October 28, 2021, indicating its determination to enter the meta-universe fully. The globalized social company is holding the most valuable data information in the world today — the social graph.
As for satisfying the rich spiritual needs of humans and forming better social relationships are the themes of the metaverse. In terms of future development, the applications of metaverse will include human work, life, socialization, entertainment, etc., especially the game — GameFi.
View in your browser the revenue generated by the top three Ether apps in the last quarter: Axie, OpenSea, and Uniswap. Axie generated over $500 million in revenue in the last three months. As the most successful game in the GameFi space: Axie Infinity introduces the idea of DeFi in the Token economy model, from the dual Token system to community governance, the trend of financialization of games allows players to deeply participate in the ecological construction and community planning of the game. More and more blockchain game platforms have launched corresponding decentralized games to enable players to Play and earn by playing games. This has also driven the trading and hotness of the game NFT, and even AXS tokens as investments. In well-known metaverse platforms such as Decentraland and The Sandbox, players can gain value-added income through virtual land trading and development.
The advent of NFT (Non-Fungible Token) reverses the systemic flaw of the traditional art industry’s inability to compensate original creators for their contributions.
Because NFT has non-fungible and non-detachable characteristics, it can be naturally bound to some artworks in the real world. As an irreproducible digital asset issued on the blockchain with full transparency, it can be props, digital artworks, avatars, etc. These NFTs naturally have the property of collection, and more and more artists are creating unique digital artworks through NFT. Such works are easier to discover all their relevant information relationships and values on the chain.
Whether you believe NFT or not, you’ll probably be shocked to learn that people have spent tens of millions of dollars on “jpg”. NBA star Curry’s $180,000 USD (55ETH) twitter avatar came from one of the NFT hottest communities — the -Bored Ape Kennel Club (BAYC), and the CryptoPunks series, which was founded even earlier, has been popular with celebrities from all walks of life.
OpenSea, the largest NFT trading marketplace on Ethernet, has received extensive attention from capital and traditional auction houses. Christie’s and OpenSea cooperation in NFT art collection has also driven more and more art lovers into the crypto market.
But NFTs are so illiquid that the “market value” of NFTs is hardly a real reference. Although the figure has risen to $210 billion. Industry expert Su Zhu expects the total market capitalization of NFTs to reach 10% of the entire crypto market in the future. However, this only shows that there are still a lot of opportunities for NFT founders and a lot of room for market infrastructure construction, and it does not mean that most NFT projects are investable.
The Most Popular Meme Coin
The GameStop(GME) incident led WSB to create a MEME culture of confrontation with institutional market manipulation, and Meme coin has evolved this confrontation to the extreme by using the symbolic images of cute animals as the basis of a Token for consensus proliferation like dogecoin and shib, no longer based on assets, ecology and technology, etc. And Musk’s continued vocalization for the dogecoin community has contributed to the rapid explosion of dogecoin prices. People follow meme coin for a variety of reasons: some want to hold it for profit, some because Musk has tweeted about it several times, and some simply because it’s fun. This has also allowed Memecoin’s zoo culture to bring the world a new perception of the crypto market: the presence of joy, kindness, learning, empathy, fun, community, inspiration, creativity, generosity, and other such factors have allowed meme coin to find value recognition among more and more investors in the crypto market.
The Rapid Evolution of Web 3.0 and DAO
In the era of digital economy, data has long become a production material for creating value. Although users are the providers and producers of Internet data, the right to attribute data and the revenue generated are not returned to users, but are instead distributed to centralized enterprises that hold a large amount of data without compensation, which is a problem of distribution structure that web 2.0 cannot solve. As a conception of the next generation Internet design, the unique digital identity on the chain advocated by Web 3.0 is also a technological revolution born from the development of blockchain.
The ultimate vision of Web 3.0 is the complete decentralization of data, and Eric Peters says that we are in a period of social transformation. Young people are attracted to new and emerging investments, and they are reluctant to invest in the traditional investments preferred by the older generation, because at the moment, traditional institutions only help old capitalists who have accumulated a lot of assets to continue to “build wealth”, while these new investment methods have the opportunity to disrupt traditional investments. This dichotomy is inevitable, as more and more young people realize that the traditional financial institutions are exploiting them.
Web 3.0 is all-encompassing and covers the entire spectrum of cryptocurrencies: smart contracts, decentralized hardware storage facilities, NFT, DeFi, cross-chain bridges and Metaverse, as well as DAOs. We believe that Web 3.0 is the next bull market in blockchain concepts. However, the construction related to DAO is an urgent issue for the whole crypto community. Currently, it seems that many community members are indifferent to the voting of community governance, and the lack of community cohesion, together with the cumbersome community investment links, are obstacles to the sustainable development of DAO.
Sequoia Capital, a powerful driver of Web 2.0 development and one of the world’s most renowned capital, has joined the world of crypto. Sequoia changed its Twitter profile to: “We help the daring build legendary DAOs from idea to token airdrops. LFG”
Real world or virtual world, Sequoia Capital chose the crypto market. Cryptocurrency, Blockchain and Metaverse perhaps become the wealth code of capital in the next era.
Decentralised Finance and Cross-Chain
In the summer of 2020, DeFi let the blockchain industry come alive. Compound revenue program has led to an exponential growth in users of various DeFi protocols, and DeFi has had a positive effect on the overall blockchain application landing. The emergence of Uniswap, Curve, and AAVE has opened up the pioneer of distributed financial applications, making the inherent financial attributes of blockchain more valuable.
A preferred incentive scheme in the DeFi program is to provide native token incentives to liquidity providers (LPs) for the underlying DeFi protocol. This mechanism has energized early liquidity in DeFi. As for marketers in Uniswap AMM, lenders and borrowers in Aave or vault holders in Yearn. Investors like the highest returns risk-assessed financial agreements, which consist of both the agreement proceeds and the mining rewards of the native tokens. But as more and more miners realize that revenue farming is unsustainable, Sushiswap has explored the “liquidity-as-a-service”, renting liquidity from other protocols. The combination of various underlying DeFi protocols stacked on top of escalates DeFi’s Lego-style.
Alchemix offers a MakerDAO-like vault that stakes its collateral assets to other revenue aggregators, creating synthetic tokens that generate their own revenue to repay interest on loans. But secondary staking also creates more risk, and it also takes on the code risk of the underlying protocols it uses.
Ethereum reached its design capacity limit this year, and the high Gas fee hindered ecological development. Other excellent public chains began to take up the market value that Ether could not carry. emerging public chains such as Avax, SOL and Luna brought tens and hundreds of times investment returns for investors. The co-prosperity of multiple chains allows the liquidity on Ether to be dispersed to other public chains. Being in the era of DeFi multi-chain coexistence, it is important to solve the cross-chain liquidity problem. As Ly2 technology matures, whoever can introduce better multi-chain connectors to help assets flow freely between parallel chains, relay chains, and second layers in the future will be able to grasp the huge wealth created by DeFi 2.0.
There are many representative cases of DeFi 2.0, and the One-stop digital financial data community — ToDFi — believes that the slowdown in lock volume growth does not mean that the DeFi fever has died down, but rather that the industry is gathering greater capacity to prepare for DeFi 2.0 is poised to explode. For example, the own liquidity protocol represented by Protocol Owned Liquidity (OHM) keeps liquidity in the hands of projects, saving users from having to move assets around when transferring across chains; the rapid expansion of the stablecoin (MIM) asset transfer cross-chain bridge represented by SPELL supports more and more public chains, allowing the market share of MIM stablecoins to rise.
DeFi offers investors an annualized return of over 50%, but only 0.5% on Wall Street. The emergence of NFT provides more opportunities for art creators to showcase themselves and make money, and further contributes to the art boom. And the emergence of metaverse and DAO broke the monopoly of capital and Internet giants on user data. web 3.0 is coming.
Second Ecological Development of Exchanges
In April 2021, Coinbase’s IPO became another milestone event for the cryptocurrency industry, marking further recognition of the cryptocurrency industry by the traditional financial markets.
Cryptocurrency exchanges have always provided the most straightforward trading and exchange services for all users. The head exchanges can offer two different solutions. One is the industry’s well-known and established centralized exchanges, such as Binance, Coinbase, FTX, and AEX. The other is the decentralized exchanges, exemplified by Uniswap and Pancakeswap, which offer exchange between cryptocurrencies and fiat currencies (C2F) and mutual exchange between cryptocurrencies (C2C). The latter is unable to convert investors’ funds into fiat currencies. Therefore, centralized exchanges will remain the most mainstream transaction aggregation tool in the future.
According to statistics from Chain analysis, the landscape of cryptocurrency exchanges has been shrinking in 2021. As in other industries, the larger players in the industry are growing their businesses faster than their smaller counterparts. The rapid growth of FTX has allowed it to gain a valuation of $18 billion in 2 years, and became the fastest growing exchange outside of Coinbase and Binance.
However, the old exchange stalwarts still cannot be ignored. After the old exchanges represented by AEX and Gate started their global market expansion, they quickly gained the attention of global users. As an old exchange that has been operating safely and stably for 8 years, AEX global expansion has achieved remarkable results and gained the capital’s attention.
According to the operational data released by AEX, the daily trading volume of its exchange has now exceeded $500 million, with registered users from more than 100 countries and regions, providing stable and compliant cryptocurrency transactions for hundreds of thousands of users every day. At the end of 2021, AEX financial products have been operating safely for 1000+ days, and The cumulative investment amount of users reached $74.2 billion, earning a total of $201.98 million. This also shows that there are a large number of international users who are enthusiastically joining the crypto market investment field.
There is reason to believe that the cryptocurrency market will kick off exponential growth over the next decade. The Crypto market is full of innovation and risk that has strong growth expectations for investors. In a turbulent period of transformation and global economic changes, the evolution of the crypto market will lead the way in fintech and become the zeitgeist of the times.