The price of Bitcoin swings like a pendulum. It rockets up with hype, and falls down with regulations.
In essence, any “trade” is based on the fact that both parties “value” what is being traded. Think of it; what value would dollars have if everyone suddenly start considering it as useless paper?
Of course, this is highly unlikely to happen to cash but plagues cryptocurrencies frequently. Cryptos are very illiquid; they are very hard to convert to cash and the final price can be 1 to 10 percent higher than expected. You sometimes have to wait hours to get confirmation for the transaction, and exchanges might even run out of the respective crypto.
Crypto HODLers deal two blows to the system; one that they wait for their assets to reach a certain profit level (which affects the liquidity) and second that they flood the market when that happens.
Consider this fact: after someone placed a multi-million dollar market sell order on the GDAX exchange, the value of ether dropped by more than 99.9 percent down to $0.10 within a second. The initial sell order dropped the price to $224.48, but like an avalanche, it further triggered additional sell orders from customers who had stop loss orders and margin positions.
Microsoft and Steam stopped accepting Bitcoin due to its “high fees and volatility”, and many companies only accept it through intermediary services.
In short, this is a real problem. As more and more blockchain solutions hit the market every day, the problems surrounding cryptos must be addressed. We need stability, easily convertible tokens and widespread acceptance of the coins.
A note on Liquidity
“Liquidity” means how easily you can trade with a certain asset. Cash is the most liquid, while real estate, wine and collectibles are less. To sell your house, you often need to hire an agent and wait for months before finding a proper buyer — otherwise you might be forced to sell it for huge discounts.
The most illiquid are venture capitals, private equities and hedge funds. It is rare that you can access your funds in these types of investments until there is a liquidity event (such as the company you invested in goes public or is acquired by another company).
While some consider investing in illiquid assets to be a good thing, traditionally this has been only for the wealthy. However, when it comes to cryptocurrencies, the expectation is that they are more treated as currencies rather than real estate. Cryptos must be usable in the real world — otherwise they will only serve the purpose of an investment that is hard to convert to something useful.
Blockchain to save blockchain
The total market cap of cryptocurrencies, as of this writing, is more than $430 billion. This is something no one can neglect, and many companies have tried to solve this problem, each of them attacking it from a different angle.
Wall Street’s approach is Bitcoin futures, allowing market participants to hedge their positions against volatility. This makes trading on Bitcoin’s value possible without being affected by the uncertainties of the mostly unregulated Bitcoin exchanges. While having very high margin requirements, Bitcoin futures offer the trader time-tested exchanges that are not nearly as susceptible to hacks, thefts, and unscheduled downtime.
However, Wall Street is only targeting Bitcoin and we know there are already thousands of other cryptocurrencies out there.
Bancor focuses on solving the liquidity problem between the different cryptocurrencies. By creating an intermediary token, they have developed a system that can potentially convert any cryptocurrency into another cryptocurrency. This is especially useful for small tokens.
MoxyOne’s approach is to convert any crypto to cash, instantly, via ATM machines using debit cards. It allows any company to create their own white labelled debit cards from their system, and give real-world usage to their tokens.
Monaco also allows for spending cryptos. They do not offer a white labelled solution such as MoxyOne but they have collaborated with Visa, which has approved its use for Singaporean residents with other countries to follow.
Nexo’s solution is particularly clever for HODLers: it allows overdrafts. You would send crypto’s to their wallet and receive cash in return — without exchange fees or taxes. You would have to pay the overdraft back and a certain interest rate, but the good part is that your crypto will stay in your possession while all of this happens.
Conclusion
Many are waiting for the bitcoin bubble to pop, but blockchain is here to stay. Which solutions prevail and which ones fail is yet to be seen. 2018 might be the year these solutions become mainstream.