The industry has made remarkable progress in winning over allies on Capitol Hill and on Wall Street. It still has to convince Main Street of its potential.
One year ago, few would have predicted the resurgence of crypto in the United States. Bitcoin was trading at around half of its current value, government enforcement actions targeting industry participants were in full effect, businesses were debanked and unable to access basic financial services and CEOs of some of the sector’s most prominent companies were serving prison sentences.
Twelve months later, the industry has come roaring back due to a new administration, comprehensive regulatory changes and greater institutional adoption—all of which has renewed enthusiasm towards crypto as an asset class.
The emergence of a regulatory framework—most notably through the passage of the GENIUS Act and the CLARITY Act, as well as a shift in enforcement tactics by agencies such as the Securities and Exchange Commission and Commodity Futures Trading Commission—point to a more accommodative climate in the United States..
Entrepreneurs and innovators who left for offshore jurisdictions are now returning to the United States to build businesses.
Several of the industry’s largest companies have had wildly successful initial public offerings in recent months with many more rumored to be coming to market before the end of the year.
However, the industry has experienced previous moments of euphoria as seen during the 2017 ICO craze and the DeFi Summer of 2020. Both bull markets ended in calamity. While evangelists will say that “this time is different,” skeptics worry that history will repeat itself.
So, with so much at stake this time around, how will the industry meet the moment?
The answer starts with trust.
Known as the “invisible currency,” trust is what underpins the entire financial system. We trust that a piece of paper currency will be backed by the government that has its name on it. We trust that that a bank will have enough cash on hand when we withdraw money from our savings accounts. We trust that when someone takes out a loan, they will pay it back. The list goes on.
For crypto to truly gain greater acceptance, the industry needs to establish the same level of trust that established financial institutions have. Industry leaders can do the following as a start:
- Educate. The industry still has a long way to go in educating the market on the benefits and practical use cases of blockchain technology. While tech-savvy stakeholders and industry observers have a strong command of blockchain-enabled products and services, users of standard financial products still don’t fully understand the potential of this highly complex technology. Industry leaders must make a better effort to explain to the general public how this technology works and how it can benefit peoples’ daily lives.
- Engage. The industry has effectively engaged leaders on Capitol Hill and on Wall St., but what has it done on Main Street? Greater engagement with everyday participants in the financial system will be vital in moving the sector forward. As a start, the industry can simplify the way in which it describes itself. Highly technical terms such as tokenization, staking, liquidity pools, hash rates and bridging complicate the industry’s efforts to engage the public. Communicating with general audiences in a way that demystifies the highly technical aspects of blockchain is an important next step in winning over a larger segment of society.
- Embrace transparency. The industry needs to commit to the same level of transparency as publicly traded companies. This means establishing strong governance frameworks, addressing potential conflicts of interest and embracing disclosure and accountability. Recent high-profile issues around audits of companies’ digital asset reserves and the opaqueness of some ownerships structures demonstrate that the industry has a long way to go in being more transparent.
- Demonstrate utility. A common critique of blockchain technology is that it is “a solution in search of a problem.” Advocates make broad statements declaring that crypto is “the future of money” but offer few tangible real-world examples. Perhaps this is why crypto has only penetrated a very small portion of the financial system (the industry’s entire market capitalization is less than 1% of all global financial assets). The technology has the potential to disrupt essential financial services, such as payments, money transfers, remittances, lending and more. The industry should do a better job of explaining the everyday utility of this technology at a practical level, rather than rely on bold and abstract claims about visions for the future.
Now is a pivotal moment for the industry. With greater institutional adoption and legislative progress, industry leaders have the opportunity to build on recent momentum. Their ability to establish trust with all stakeholders will determine how successful they will be. The choices made today will shape the industry’s reputation and resilience for years to come.
