Feeding the Vicious Cycle of Crypto-wealth Concentration
The problem with intermittent price crashes is is that, by many retail (everyday) investors selling off their digital assets every time there is a major issue in general markets, somewhere around the world, it is further concentrating crypto (and thus, dollar) wealth in the hands of fewer people who can readily afford to buy dips. Several investors simply relinquish further control to a smaller number of massive players in the space.
This repeated action constantly feeds a vicious cycle, and is what could allow more events such as last Saturday’s 10–15% price collapse (in just one hour), to unfold. To clarify, I do not blame the so-called ‘crypto whales’ for their actions. They are merely exploiting a good opportunity to buy at lower prices, and clearly understand the merits of these digital assets, especially in the medium-to long-term.
Many investors from across the broad spectrum of backgrounds either have tunnel vision and/or fail to acknowledge the overall trend of this market; it is (generally speaking) a growing one. Specifically thinking about Bitcoin and Ethereum, they reached 2017 all-time highs (ATHs) of ~$20,000 and ~$1400 respectively. Notwithstanding a major and extensive bear market between 2018 and (mid) 2020, both assets set new ATHs earlier this year at more than thrice these above-mentioned prices.
Technological improvements in blockchain and the general DLT space are being made, but there is still a lot to be done. Besides current issues with limited scalability, expensive fees, sub-par security for some blockchains, inadequate interoperability, etc., there are bigger risks at play here; in particular, interference from stake actors and hackers in trying to undermine the crypto space, as I have recently written about.
Yes, I acknowledge that rapid and significant price fluctuations are problematic when using a crypto as a store of value or for transactions, notably with its early days in a developing nations such as El Salvador. However, over time, if more people (globally) better understood the technology, gave many of these digital assets a genuine opportunity, and refrained from constant panic selling, there could be, albeit gradually, more stability in this asset class.
Many critics also ignore the fact that (central) banks and governments have shafted their citizens over the years and decades, in some way, shape or form. High inflation rates across much of the (developed and developing) world and banks restricting access to customers’ funds are examples of the flaws with the long-standing legacy financial system. Compare annual inflation rates for various countries versus Bitcoin’s (decreasing) rate, currently at 1.75% p.a.
Nothing is perfect, not even crypto; far from it, at present. Nonetheless, many digital assets still offer more control to people than what many governments would permit/have allowed to their citizens. The mainstream still conveniently disregards this and proceeds to continuously disparage crypto.
Despite this, a increasing number of people have propelled the overall space to a $2.6-trillion market cap and growing.
Expect plenty of activity for the industry in 2022 and beyond, for better or worse. It goes without saying which way I think this will unfold.
Further reading and additional resources:
https://tradingeconomics.com/country-list/inflation-rate
https://www.bitcoinblockhalf.com/
https://www.coindesk.com/markets/2021/12/04/bitcoin-drops-9k-in-an-hour/