As Institutional ETPs Push BTC Higher, The Crypto Ecosystem Needs A Revival

Institutional spot bitcoin ETPs have become a strong catalyst for BTC’s market dynamics in the past couple of months, pushing its price to multiple ATHs in quick succession.

Blackrock, the world’s largest asset manager, whose spot bitcoin ETF became the fastest growing ETF ever, has reportedly embarked on a $10-trillion tokenization journey, besides announcing its ETH ETF in March, 2024.

While these developments have helped to trigger the next crypto bull cycle and created a renewed enthusiasm for BTC, ETH, and other top cryptocurrencies, a vast majority of the crypto industry is still struggling.

Alpha Quest and Storible examined over 12,000 projects for the 2024 Dead Coin Report and found that 65 percent of the cryptocurrency market was comprised of “dead coins” by the end of 2023.

Moreover, 75 percent of projects launched during the 2020-2021 bull cycle didn’t survive, let alone succeed. Leading blockchains like Terra and Cardano featured among ecosystems with the deadest coins, highlighting the ubiquitous nature of the dead coin phenomenon.

Besides projects surviving less than three years on average, less than a market cycle, the crypto industry is facing the potential threat of excessive capital consolidation into ETPs owned, issued, and managed by big corporations like Blackrock and Fidelity.

Industry pioneers like HM Rawat, co-founder and ceo of Lingo, argue for more down-up growth stating, “The industry needs better incentive models to boost community engagement, while creating new revenue streams to help projects become truly self-sufficient and more efficient, so they have better chances of surviving volatile markets and external pressure.”

Crypto’s Grassroots Upgrade

Enabling widespread financial access across industry verticals and socio-economic demographics is one of crypto’s biggest promises. This comes with decentralization, scope for rapid, demand-led innovation, and healthy competition among builders and service providers. This rich diversity and participation is key to crypto’s long-term success.

As U-topia’s co-founder and ceo, Emmanuel Quezada, notes, “Web3 must be accessible and relevant to everyone, no matter their age, cultural background, geographical location, etc. This is possible with progressive systems that abstract the complications and onboarding hurdles, while tapping into the power of on-chain provenance, immutable ownership metadata, and sustainable incentive mechanisms to engage and empower grassroots communities at scale.”

Diversity is one of crypto’s biggest strength, and the scenario where capital and user engagements become consolidated around a handful of assets, products, or platforms, while others fail will be seen by many as a function of market maturity and scaling – the most popular products and brands with the highest utility to consumers often win.

Persistence founder and ceo, Tushar Aggarwal says, “Crypto is only over a decade old and so many powerful projects have already come across. Imagine if all of them had the liquidity, community engagement, or whatever was necessary for their success. The industry would be 10, 100, 1000x bigger and more impactful that way. It’s not far-fetched or utopian, especially now that robust cross-chain value distribution frameworks are ready and functional.”

Concerns And Adversarial Cases

While it’s great to experience the frenzy of another market up-cycle, the macro concerns and the negative remains of the last bear cycle are still very evident. The persistent crypto layoffs and downsizing since 2023 are still looming, as is the number of cryptocurrency funds and exchanges that have recently shut down local or global operations, or gone bankrupt.

The exchange closures are particularly notable given their links to enforcement actions or other regulatory developments.

The Financial Action Task Force’s (FATF) Travel Rule, which came into effect in September 2021, brought a range of practical issues for crypto businesses, especially exchanges. Different implementation requirements across jurisdictions caused the so-called Sunrise Issue, while the lack of regulatory clarity increased operational costs.

The high compliance risks and cost implications not only put smaller exchanges and VASPs out of business, but they also drove a number of nations to ban crypto altogether.

While emerging institutional ETPs have brought mainstream attention and capital to crypto, the long-term vested interests of their issuers is still emerging. Blackrock’s plan to acquire its own spot Bitcoin ETPs for the Global Allocation Fund, signals a tendency to consolidate capital control and maximize profits.

As Mark Goodwin and Whitney Webb noted in their extensive article on Blackrock’s history and likely intentions, too much concentration of cryptoassets in the hands of institutional players could make undue regulatory enforcements and strong-arming easier, challenging the resilience and autonomy of blockchain networks.

Can Crypto Push Back & Survive?

By playing to its strengths and doubling down on the novel propositions it originally began with, the power of community-led growth and innovation is a foundation upon which crypto projects can thrive.

According to Elena Sinelkova, CryptoChicks founder and decentralization coordinator at Metis Foundation, “Low community engagement is a key reason why many projects fail, especially during bear markets. It’s clear that strong community support is necessary to endure crypto’s volatility and the pressure of bear cycles.”

Crypto ecosystems need robust incentives and reward distribution models to bootstrap and sustain community engagement.

PredX Founder Rein Y. Wu notes, “While projects can build up their community through social media marketing and so on, they need fair economic models and revenue streams to retain support long-term. The answer to what’s in it for me must be compelling, otherwise, it’s nothing.”

While institutional products and regulatory progress have had positive implications for crypto’s mainstream adoption, the crypto industry’s ultimate goal must be to build on its core values of inclusion, transparency, privacy and decentralization, to the benefit of consumers.

Healthy competition and ensuring a collaborative environment will help to revive an ailing crypto market and better increase its success rate and better enable native projects to benefit from the attention big mainstream players bring.

It’s about playing and not being played.