As we enter the last part of 2022, we see the cryptocurrency market mired in a bear. Prices across the board are beat up. This is gathering all the headlines, often reinforcing the idea that cryptocurrency is a scam.
Understanding markets is important. However, when we look at what is going on, we see that cryptocurrency is still operating on its own island. It is still cut off from the rest of the world. Most utility that comes from tokenization applies to a self referential system. In other words, the biggest use case is swapping one coin for another.
Most focus upon the monetary aspect of cryptocurrency. That is what Wall Street is interested in. Yet, their focus is on this as another asset class. To them, it is no different than stocks, bonds, or any other derivative.
Sadly, that is how most are looking at it. The idea of "when moon" is still on the minds of many. This is causing untold headaches for the industry as a whole. It is what gets the attention of regulators along with the politicians. Ultimately, it makes the journey many times more difficult.
That said, the one of the paths to mainstream adoption is to integrate with the real economy.
Funding Productive Investments
It is interesting how the mindset is regarding cryptocurrency. We know that the industry is filled with venture capital money. Here we see firms bring their fiat currency to fund the development of blockchain related projects. It seems natural.
Yet, how often do we see people funding real economy projects using cryptocurrency? How come we do not see the reverse happening? If, after all, cryptocurrency is money, why do we not apply this to productive investments that generate a sustained return?
Here is where we still see a clear line between the two "economies".
Naturally, we would be remiss if we did not mention the fact the market is still rather small. For that reason, there are limits to what can be funded. Nevertheless, some basic projects could start to tap into this realm. It would also help to integrate cryptocurrency in the real economy.
Essentially, cryptocurrency needs to move beyond just financialization. We see this with existing currencies. As the financial sector gets larger, the real economy tends not to see the same benefits. Ultimately, the money gets locked up in the financial realm and being passed around as opposed to entering the real economy. It is one of the reason for the large shift in income and wealth inequality. We are now to the point where the real economy is starved for money, leading to collapsing growth rates.
Hive Is Starting To Change This
Isn't it ironic that one of the most overlooked blockchain ecosystems is starting to change this? We are seeing some reaching out of a small scale. One of the advantages Hive has is the Decentralized Hive Fund (DHF). This is allowing for the funding of different projects that could have real economy impact. We are seeing both direct and indirect opportunities.
A great example of how we see the bridge taking place is with the Hive Borehole Project. They recently started their 4th one, bringing water to another local community. This certainly is changing lives in that country. In fact, the first stage was already completed.
Of course, this is not an investment in the traditional sense. It is not a business or start up which will generate a return over time. However, this is an investment in people, some who might join the world of Hive due to the efforts of those involved.
Obviously Hive is stepping in where the government did not. This is typical in that the private sector often can get things done in a more efficient way, especially if there is corruption involved.
This is a powerful starting point yet it has to be built upon. The ultimate transition is when the monetary reversal takes place: real economy companies being funded through cryptocurrency.
Is Infrastructure The Answer?
There is no doubt we are still early in the game. Many of the issues we presently face are due, in part, to the lack of infrastructure. This is something that is being worked on daily.
If we have more solutions, especially those truly decentralized, this could be a major step forward. One of the challenges with funding real economy projects with cryptocurrency is the government's stance on it being a security. Here is where decentralization provides the answer. If there is a way to fund companies via crypto while operating outside the reach of governments, we could see an entire different scenario emerging.
Of course, even with infrastructure in place, the money has to be available to invest. Here is where the financial aspect does enter. Being so young, along with a major bear, has limited the "purchasing" power of crypto at the moment. We see the total market capitalization now sub $1 trillion.
Thus, using simple math, we can see that, even at a 20% return, this is only generating $200 billion per year. The industry has a lot of growing to do before we will see the resources to fund major initiatives.
Nevertheless, we can truly enhance the process. Consider this idea:
Cryptocurrency is used to fund a start up. The company operates in the real economy, accepting whatever currency is the norm. When the profits are generated, the money, let's say USD, is used to buy cryptocurrency for payout. Here is how we get more fiat currency funneling back into cryptocurrency.
Bridging the gap between crypto and the real economy will go a long way to pushing for mainstream adoption. At that point, people will quickly realize how much is being offered.
It will also reframe the entire conversation around this industry.
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