It should not be surprising that Bitcoin will plummet to $8-12k, before resuming a bull market at a later stage. The recent FTX crypto crash shows that we cannot claim to be free from the legacy financial system and its flaws and continue to copy them while hoping everything will work out fine.
The crypto market has seen an explosion in its value, which has led to crypto billionaires. However, it is now in crisis because it has become speculative. It needs to be reintroduced to the traditional financial system that is based on sound economics, real performance value and real economic assets.
The extraordinary growth potential of the crypto industry is being slowed by both structural and systemic risk, according to Mamadou Kwidjim, influencer #13 in Blockchain.
Traditional Crypto system
It borrowed bad things from the traditional financial system, but ignored the good stuff that was supposed to make the industry viable and protect investors. It could be compared to traditional finance systems and called Bitcoin the Beta of crypto market.
Beta is a measure of the stock’s expected movement relative to the market. Beta greater than 1.0 means that the stock is more volatile relative to the wider market. Bitcoin is an industry indicator, so if Bitcoin’s price fluctuates, the crypto market will also change. You can imagine what would happen to other assets if Bitcoin loses 25% in 24 hours.
High Crypto experience
My two decades of investment and high finance experience in the tech sector can guarantee that this is only the beginning of a domino effect. Many key players, along with the largest in the world, were exposed to FTX. The systemic risk in crypto is 10 times greater than traditional finance. This is due to limited liquidity, high correlated assets and 2 main assets representing 60% of the industry market cap.
This industry has a small market cap of $2-3 trillion, compared to $750 Trillion in global financial markets (from which the global stock and fixed incomes market caps are $125 Trillion).
Let’s look at the major events last week on the US Stock Market and Crypto market. The stock fell 5% after Elon Musk announced that he had sold $4 billion worth of Tesla shares. CZ (Binance CEO), announced that FTT Tokens would be disposed of. This led to a freefall in FTX tokens of 80% within a single day.
Although Tesla shares could rebound due to sound fundamentals, it is unlikely that FTX will. They will most likely be liquidated due to a lackluster governance and poor fundamentals.
One could argue that crypto assets have been rising rapidly for the same liquidity reasons as before (that is, the principle of high volatility). But do these peaks last? It’s not.
The reasons for the drop are numerous. They include the high correlation of crypto assets, low market liquidity which leads to high volatility, and lack of economic fundamentals. Real economic backing is fueled by digital currencies backed by almost nothing. That’s why the crypto peaks don’t last.
Crypto industry’s growth
Industry leaders will, without doubt, preempt regulation and provide more transparency about their “Net-reserves” and the actual backing of tokens. While this will be a positive step, it will not solve the industry’s systemic problems. What other things are needed for the crypto industry’s growth and triumphantly emerge from its infancy?
Five key solutions are needed to overcome this crisis.
- Transparent mechanisms and proactive disclosure while respecting privacy
- Broader Asset Class Diversification – assets tokenization bridging to real-world economies for greater stability and liquidity
- Retire to the economic and fiscal review of the business fundamentals, and reduce the speculative approach that is damaging the industry.
- Implementation & Standardization of portfolio risk management/assessment protocols and tools
- Adoption, Adoption and Adoption to increase market liquidity and market depth beyond the crypto community.
The crypto industry is still very young. Global financial markets and commodities market (gold, Silver, etc.) are estimated to total more than $500 Trillion. There are also assets from the real world or assets from the creative sector (art, music, NFTs) which are awaiting tokenization to allow fractional ownership to all.
These assets are of real economic value, and can help diversify asset classes and strengthen the resilience of the crypto economy. This industry is incredibly promising and billions of people are waiting to join it and take advantage of its wealth redistribution opportunities as systemic and structural risk preventing growth and adoption are gradually addressed.
Ubuntu Group was founded by Mamadou Kwidjim toure. Ubuntu Capital, which focuses on Investment and Advisory Services, was founded by Mamadou Kwidjim Toure. The group also launched Ubuntu Tribe, a Fintech Company focused on asset tokenization and in particular democratizing gold access.
This token is backed with gold and aims to provide a solid and reliable investment asset class for everyone. Hackernoon ranks Mamadou K. Toure among the 30 most influential blockchain leaders worldwide, and Forbes Magazine lists him as one of 10 most influential African men.