The remaining steps to mainstream institutional investment
The crypto space suffers from its checkered history and, to grow further, the ecosystem must become safer, more usable and more mature.
It has been said that you only get one chance to make a first impression. Perhaps the best example of this old adage is the cryptocurrency space.
From exit scams and money laundering, to unaudited code and high carbon footprints, the crypto landscape has spent the better part of the past decade scrubbing itself of its infamous past. For many, the sanitizing of the decentralized ecosystem was inevitable — simply a matter of when, not if. This mindset hindered the sense of urgency that should have been on display and may have ultimately contributed to the skepticism exhibited by mainstream institutional investors.
Today, however, the decentralized economy has grown into something much larger. Even in the face of market volatility, the culmination of decentralized finance, the nonfungible tokens craze, and the year-over-year increase in token prices have demanded the attention of these same investors who once shunned the decentralized economy.
How, then, do we convert this institutional interest into institutional investment? While the answer may be simple, the execution will likely prove far more challenging. Let’s take a look at what must be done in the months and years ahead to retain mainstream institutional interest and secure institutional investment.
Given last week’s dip, it’s natural to identify market stability as the most glaring problem within crypto. But, make no mistake, the primary (and most daunting) challenge facing the crypto space is security.
According to CipherTrace’s cryptocurrency crime and anti-money laundering report, major crypto thefts, hacks and frauds totaled $1.9 billion in 2020 — the second-highest annual value recorded. The good news, however, is that this figure marks a drastic reduction from the $4.5 billion in fraudulent occurrences recorded in 2019.
Significant, sustained measures have been taken by platforms across the space to make the crypto ecosystem a safer environment for traders. With crypto theft down nearly 60% in 2020, early indications are that the heightened security measures are working and that the space is becoming far safer.
By all means, that in itself is an impressive feat. However, to parlay interest into investment will require more than a reduction in fraud. It will take a collective effort across the space to implement measures to ward off nefarious activity. Platforms within the space are tasked with demonstrating to institutions that the crypto space is no longer for unsavory purposes but, instead, a tried and tested digital economy that cannot afford to be overlooked.
The primary way to attract mainstream institutional investment is through a wholesale cleaning of the space — a commitment to delivering, to users of any skill level, platforms that are thoroughly vetted and that place security at a premium. Safe and secure trading platforms are a must to allow for cross-ecosystem trading without the fear of a faulty platform or shoddy listings.
Mainstream institutional investors are driven by sound strategy in safe environments, not hype cycles producing misinformation. In truth, the crypto space is in the process of maturing. For it to mature to a point that translates to institutional dollars, however, will require more sustained growth.
Cryptocurrency has long suffered from a usability problem. With regard to financial investments, security and usability go hand-in-hand. Naturally, users feel more secure when the platform is easy to navigate and the functionality is up to par. However, due to speed to market and scale, user experience, or UX, has not been the first priority for crypto exchanges, and erasing that perception from the eyes of mainstream onlookers has been an uphill battle.
The early days of crypto were a lot more forgiving. Subpar UX was easy to overlook because the majority of crypto users were traders and speculators who had the technical know-how to navigate complexity. However, when less technical enthusiasts entered the space, exchanges and trading platforms shifted their focus to developing consumer-facing UX. While UX has undoubtedly improved since the early days, there is still a way to go in making transactions easy for the more discerning newcomers who are used to seamless UX across existing trading apps.
At present, the average cryptocurrency trader uses 3.36 cryptocurrency exchanges to buy, sell and hold different currencies. That means the average trader is expected to toggle between more than three separate interfaces, complete three different background checks, and track spot prices across three exchanges. This is an arduous process for even the most experienced traders. Making the assumption that the space is ready to welcome new mainstream users into the fray is entirely misguided.
Since late 2020, there has been a surge of retail and institutional interest in the space. However, the platforms in place remain hampered by inadequate UX and are far from user-friendly. To accommodate the influx of institutional users who are not crypto-savvy, it is vital that platforms place functionality and usability at a premium to not only attract these users but also to retain them.
Perhaps ahead of schedule, the cryptocurrency space is creating significant waves among traditional investors. With major investors like Mark Cuban and Michael Saylor normalizing cryptocurrency investment, coupled with crypto exchange Coinbase being listed on Nasdaq, there is reason to believe that cryptocurrency will make its way into more investment portfolios. With that said, converting speculators to investors hinges on the crypto space’s ability to mature in a meaningful way.
From the outside looking in, the crypto space still conjures images of basement-dwelling twenty-somethings tinkering on GitHub and Reddit. While most of us know this is far from the case, it is incumbent upon those within the space to demonstrate the long-term viability of what is being developed from within.
2020 accelerated interest in cryptocurrency in unprecedented ways. As more centralized laymen enter the decentralized ecosystem, the space has no choice but to mature — and quickly. Rest assured, the space will mature to accommodate this new interest.
We are in entirely uncharted territory. Cryptocurrency’s ascension into the mainstream spotlight has occurred faster than many predicted. However, for institutional investors to take the cryptocurrency space seriously enough to invest, the ecosystem must become cleaner, more usable and more mature. The current iteration of the space suffers from its checkered history, and it is incumbent upon those within the cryptosphere to reshape its image.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
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Author: James Gillingham