Finding the path that leads to crypto maturity

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We are 13 years into the grand cryptocurrency experiment. And to many, it’s a mysterious brew of funny money and speculative assets and a fraudster playground. In fact, crypto is at a critical inflection point on its path to maturity.

The path forward requires closing the massive gap between the blockchain’s promise to improve people’s lives and today’s reality which falls well short. This gap represents one of the largest innovation opportunities of the next few years for builders — and for the investors who back them.

Bankruptcies, forced liquidations, illicit activity and investor losses dominate the headlines. Like the dot-com bubble in the 2000s, the state of crypto today says less about the technology itself than the speculation surrounding it.

To be sure, too many people spent too much money buying too many new cryptocurrencies that never should have existed. This created huge artificial demand that propelled even the most speculative cryptocurrencies.

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As the saying goes, it’s all fun and games — until someone trips over the dead body.

The dead body here was leverage. Too much of the buying was done by speculators who had never lived through a bear market with other peoples’ money — money that had no chance of being paid back. Buyers disappeared. Lenders went into survival mode. Their margin calls went to voicemail and borrowers were forced to sell speculative assets into a market without buyers.

Nothing about the great crypto crash of 2022 that wiped out $2 trillion of “value” should be a surprise, as we have seen this before. “Call it the $1.755 trillion dot.com investing lesson,” David Kleinbard reported in CNNMoney as 2000 came to a close. “It’s hard to think of a publicly traded Internet company that is not down at least 75 percent from its 52-week high and that hasn’t trimmed its expenses or laid off workers.”

Sound familiar?

A reason for being

“Carnage in the crypto market won’t let up, as token prices plummet, companies lay off employees in waves, and some of the most popular names in the industry go belly up,” CNBC reported last month. “The chaos has spooked investors, erasing more than $2 trillion in value in a matter of months.”

In order to attract the interest in crypto that we saw after the dot-com bubble burst, we need to jump off the Ferris wheel of speculation and onto an industry’s path of purpose. Just like humans who feel most fulfilled when they find purpose, the crypto industry needs to find its reason for being, just like every other technology before it.

Crypto and Web3 represent the latest advancement in a decades-long march of technology. We needed the computer chip and the mainframe to get to desktop computers, and then to the laptop and smartphone. The internet needed to exist before AOL made it easy and accessible to the masses. Without all of the above, there’s no blockchain, cryptocurrencies and NFTs. World-changing moments in technology are an evolution — and we are on the cusp of crypto changing everything.

Nonetheless, in order to change anything, our purpose must not be to make a quick buck on the back of leveraged consumers and fund managers. It must be grounded in usefulness and that usefulness must be unlocked by the technology itself and not be possible without the technology.

We’ve seen this moment before. For the internet to catch fire, we needed an easy interface (thank you, AOL) and useful services (thank you, Amazon, USATODAY.com and other early internet pioneers). We had everything we needed for businesses to harness computing but didn’t have a computer in every office (thank you, IBM, Apple and HP) and programs to make them useful (thank you, Microsoft and Adobe). And now we’re at a similar critical moment for crypto and blockchain. We need the AOL, Amazon, IBM, HP, Apple, Adobe and Microsoft of this new technology.

Most exciting to me is that many of these companies are now just getting started during this crypto crash.

Mike Lazerow is the managing director and co-founder of Velvet Sea Ventures.

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