Crypto Assets are volatile because no one is using them (yet)

Bildschirmfoto 2018-10-06 um 15.44.43

Bitcoin and other cryptocurrencies have one thing in common: they are extremely volatile compared to traditional asset classes. What seems to be an excellent environment for traders, who tap into the opportunities these massive short-term price swings provide, is on the other hand not an appropriate setting for the mass adoption of cryptocurrencies as a means of payment. Many bigger online shops took a step back from the idea of implementing bitcoin as a payment method because of its volatility.

In this post, I will try to give an analysis of the situation and a positive but not entirely unconditional outlook on the future of crypto. However, the first and most important thing first: Blockchain is real. Just as real, however, is the volatility of cryptocurrency prices. There is also a simple reason for these price swings, but unfortunately, there is no quick fix:

As long as nobody uses cryptocurrencies for their real purpose, its value lies solely in the price that comes from speculation and trading.

So unless we can create real activity through solid use cases for decentralized software, the usage of cryptocurrencies as a means of payment in everyday life and the creation of sustainable communities within the industry, cryptos one and only big application will remain speculation and trading. In this case, volatility will persist as the price is based on subjective market sentiment rather than true intrinsic value.

Let’s take a closer look at the blockchain space from a more realistic perspective: If you follow the news about the crypto industry, you might get the impression that everything that happens here happens at an incredible pace and the whole industry is growing at an even faster rate. News about freshly baked Bitcoin millionaires and „experts“ that compare current trends to the advent of the Internet, add to this picture. However, realistically, the blockchain industry is still very small. Here’s a comparison: The entire capital that all new blockchain startups combined raised through their ICOs during an average month, only represents a fraction of the revenue a company like Amazon or Apple generates over the same period. So the calculation is relatively simple: more adaptation and real use cases = less volatility.

What would happen if only a small part of the possible use cases of the blockchain were successfully implemented and made suitable for the mass market?

The Blockchain and Crypto innovations that are currently experiencing the biggest hype – Stable Coins and Decentralized Exchanges are once again focusing on the investment and trading aspects of the technology. We have to overcome this limited way of thinking and create everyday use cases for blockchain and smart contracts. Usability and access are the key points here. First, we need new developers who want to develop these applications, and we have to bring them on board as smooth as possible. We are pretty much on the right path, I think. Second, we absolutely need to find ways for the average user to be able to utilize these applications and integrate them in their everyday life. On this part, we still have a lot of work to do. Most of the procedures that new users have to go through to interact with decentralized applications or cryptocurrencies are still too complicated for non-tech-savvy people.

Only when we will be able to overcome these barriers we can start talking about which blockchain-based company will compete with the established tech giants to become the „next Uber,“ the „Blockchain Amazon“ or the „Apple of the Crypto World.“ Only then will the value and acceptance of these companies reach a level that makes them comparable to these superpowers.

And that is exactly where the prices would be more stabilized. But we still have a long way to go.

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