Following the rise in bitcoin prices in 2013, the popularity of cryptocurrencies skyrocketed, resulting in the introduction of new cryptocurrencies. According to the Coin Market Cap portal, the number of cryptocurrencies with a market capitalization of more than US $ 1 million increased from 8 to 32 in 2014-Market Cryptocurrency.
Many businesses and individuals are currently developing new cryptocurrencies through a mechanism known as an ICO (Initial Coin Offering). In which a series of virtual currencies are developed and sold to the public in trade for other cryptocurrencies. Fiat money in order to gain potential benefits from the project.
Since cryptocurrencies have become so common. Raising funds via initial coin offerings (ICOs) has become more successful than conventional angel investor funding and resources like crowdfunding.
A new wave of bitcoin millionaires has also arisen as a result of cryptocurrencies. These young digital tycoons are putting their money into promising new crypto ventures in order to improve the ecosystem.
The advancement of cryptocurrencies is strongly intertwined with the development of market architecture. Which serves as the foundation for daily interactions between virtual currency users.
Without efficient credit systems, ecosystem-healthy, secure places for private and decentralized cryptocurrency trade. The limited spreads and electrification of OTC trading, there would be no innovation, and Bitcoin would continue to grow in value globally.
All of this and more make up today’s humming cryptocurrency broth, where we will discuss evolution on a regular basis.
Part I – The Time Of Storms And Storms: 2018 – Until Today | Cryptocurrency Evolution
Years of peace have elapsed in the cryptocurrency kingdom’s territories. Floods wreaked on our crops, as though the local gods despised greed and growing pride. And international freight and exports were at risk. The ocean ports were haunted by hurricanes and storms in revenge for dumping hard-earned gold down the drain (rather than worshipping their creations and making sacrifices). We didn’t seem to be getting any closer to the promised dry land.
It was fate’s intention to reward the bravest, a handful of madmen who would not give up, for their earlier efforts. However, for the sake of the natural principle of time passing (have you ever seen it flow in the reverse direction?) They may not have been aware of it yet.
As of December 2017, the cryptocurrency industry has progressed to the next level, moving from an individual-focused market to one that is open to institutions. Derivative volumes increased by more than 25 times during this period, while bid-ask spreads shrank by 90%. The market has evolved from being handcrafted, costly, and denominated in BTC to being completely electronic, inexpensive, and denominated in stablecoins.
Part Ii: The Age Of Electrification: The Future Of Cryptocurrencies
It might seem that we are in the early stages of another systemic evolution of the cryptocurrency industry. Similar to the switch from steam to electricity.
Iteration 3.0 would be (1) radically more capital-efficient and (2) a bridge between regulated markets And exchanges and developing decentralized finance when it comes to fruition (Defi).
Capital Efficiency
Leading to market fragmentation and a scarcity of credit scores around the sector, cryptocurrency trading remains capital inefficient.
Institutions are unable to use cross-collateral. That is use a margin posted with one broker or scheme to secure positions. Since centralized cryptocurrency exchanges have high margin criteria (inter-exchange).
This forces companies to fund almost all of their trading activities entirely with their own money. And makes payment settlements reliant on multiple (at least) block confirmations. Full financing is especially difficult in highly unstable settings. And blockchains are the most overburdened and transactions take a long time to complete.
Perpetual swap transactions have become the primary source of short-term funding as a result of these inefficiencies.
The reliance on the perpetual market as a primary source of funding is extremely inefficient. In March 2020, cascading liquidations resulted in a (hypothetical) liquidation of over USD 1.6 billion per BitMEX itself (due to the use of financial leverage, the actual protection in the system was much lower). Interestingly, the failure to move sufficient collateral in time to fund losing positions was a key factor in such substantial liquidations. The avalanche that flooded the BitMEX engine that day largely contributed to the cryptocurrency’s second-largest drop in history.
Capital productivity is driven by credit creation and a shorter transaction lifecycle. Companies will get more than $ 1 in buying power $ 1 by establishing a loan. Shorter periods mean that the same dollar will circulate more than once in the ecosystem, boosting liquidity.