Tech stocks, including cryptocurrency, are not as valuable as last year’s cash-rich market thought they were. But crypto prices falling is not necessarily a bad thing. It signals a return to relevance, and heralds the beginning of a new chapter.
Ending months of relative stability, cryptocurrency markets have rarely been as turbulent as they are today. Traders panic as the price of their investments have fallen by 70-90 per cent from their peak in January. Bitcoin at below $4,000 (Dh14,690) is a scary proposition for those who have been in the crypto market for a year or more.
At the peak of the crypto bubble, thousands of start-ups brandishing hastily drafted white papers entered the market and enticed people to invest real money to fund ICOs (initial coin offerings) in support of sketchy technological solutions, many of which never delivered any real value. In addition, central banks — especially the US Federal Reserve — are changing course from a super-loose monetary policy, which was prudent at the time of the financial crisis, to raising interest rates in an attempt to allow markets to reprice themselves.
It makes sense that investors think crypto is worth a lot less today, as the price of borrowed money rises steadily. Investors want more certainty that they are buying something of real value.
In the old environment, ICOs promising heavenly returns for investors in their proprietary crypto tokens were neither questioned ... nor held to account for failing. Today’s investors have the opposite view. The importance of traditional valuation metrics has made a comeback with a vengeance.
Return to relevance
A historical perspective is relevant. In 2000-02, tech stocks plunged amid the dot-com crash, but that in turn cleaned out the worthless companies, and ushered in the subsequent tech revolution, bringing about the rise of the “siren servers” — Amazon, Facebook and Google.
The most useful tech innovations flourished as the bubble popped, and I am optimistic that the present troubles will bring out the best in fintech entrepreneurs. A price collapse is precisely what was needed for crypto to take the next step forward.
The compellingly subversive, heroic innovation of Satoshi Nakamoto has proven itself in practicality. So, what will be the next chapter in the crypto saga?
Some of the innovations I personally find most valuable include using crypto as a medium of micropayments to pay us for our data. And, using the blockchain to verify identity rather than having to rely on third-party intermediaries, or having to remember dozens of passwords.
Another worthwhile innovation is using blockchain and crypto to facilitate tips and donations to artists, musicians and other content creators. However, I believe the most promising innovations are using cryptocurrency to build a low-cost, super-fast, blockchain-based money transfer system to replace the present SWIFT-dominated one.
Migration from one country to another to seek out a better, more dignified life for oneself, or one’s family is one of the most prevalent human pursuits of our present time. The world is experiencing a dramatic increase in legal overseas migration for work, and there are currently 250 million migrant workers coming from developing countries to work in developed ones.
Annual cross-border remittances have risen to more than $600 billion according to the World Bank. Migrant workers are not only the breadwinners of their families back home, but also in the case of many developing countries, the cash they send home makes up a significant percentage of annual GDP. For example, in the Philippines, over 10 per cent of the GDP (about $30 billion) comes from overseas workers. Such a globalised, macroeconomic phenomenon is unprecedented in human history.
Worker migration is high stakes for the global economy, and yet the massive growth in cross-border payments has highlighted the shortcomings of the current system. In a staggering failure, long processing times and unreasonably high fees have encouraged workers to find other avenues of transferring money that are not considered part of the mainstream financial system.
Blockchain technology and crypto could make it far cheaper, efficient and faster for migrant workers to send money to their families. With blockchain, both a sender and a recipient would be able to track the money and know exactly whether the funds have reached their destination or not, and the cost of the transaction would be reduced considerably.
Such may be the crypto “killer app”, which could make the most valuable impact on the lives of more people than perhaps any other technology has.
Martin Saldamando is an entrepreneur and strategic communications consultant.