Here for the shrimp: The importance of everyday investors to the success of crypto and DeFi
During the last down-cycle of the crypto markets — before the pandemic bubble and the laser eye frenzy of the last bull run — one bright spot was the promise that institutional money was on the way.
This was in 2018, and following the massive crypto bull run of 2017, which is now considered one of bitcoin/crypto’s mainstream moments.
Before, the crypto markets were viewed as fringey. Afterward, because the collective cryptocurrency market cap hit $760 billion at its peak in 2017, people found it hard to look away.
The promise of big money (like hedge funds, corporate investors, and pension funds) is that investors with deep pockets could provide ballast during times of market volatility. And that overall market liquidity will lead to greater price stability and tame the fierce-swing market pendulum.
After crypto’s moment in the sun in late 2017 and early 2018 and then during the subsequent market drawdown, people had a lot of questions and a lot of ideas about what the future of crypto would look like.
This is not unlike what is happening now. After another dramatic crypto market run of 2021, followed by a wicked pullback, many are wondering what comes next.
But back in the post-2018 days, before the high profile scams and drama (the 2017 run had its own share of scams, but they were a little bit more obvious than the Luna/3AC/FTX kind because they came in the form of empty initial coin offerings (ICOs) and weakly disguised pump and dump schemes), the promise of institutional investment — and the suits and ties that came along with it — was talked about as if it was a point of hope out on the horizon.
From a market perspective, the logic of giddily waiting for billions of investment capital to enter the market — and along with it, a leveling up of the overall professionalism and investing infrastructure made sense — and it still does.
To be clear, the arrival of institutional money — and all that that means — will be a positive thing, and a necessary thing for crypto.
But, it’s also really important that we don’t lose track of one of the main reasons why crypto should exist — it provides an alternative, or a better way of doing things for regular people — for the shrimp.
Why small investors are important to the health of overall crypto markets
Access to crypto markets benefits small dollar investors. At the same time, the participation of everyday investors is also beneficial to the overall health, utility, and security of crypto markets.
Right now there are plenty of opportunities for institutional investors to make money and an abundance of markets where they can deploy capital.
That’s not really the case for everyday investors that don’t have accredited investor status. Sure, regular investors can open a regular brokerage account, but options for getting access to venture capital or private equity funds (or other investment opportunities that might have lower correlation with the broader stock market) are limited.
That’s why new crypto products and services like staking or yield farming, or even just buying and holding small amounts of well-established and legitimate cryptocurrencies, like bitcoin and ether, opens new access points to investment opportunities.
Eventually — and if access can really be evenly distributed — new financial products based on open systems and transparent accountability (like DeFi) can provide mass opportunity to take a lot of the friction and inefficiencies out of financial products, which create barriers to entry.
In regards to the shrimp, more access means being better able to compete with seemingly insatiable bigger fish.
Just take a look at today’s stock market in the United States, which is top-heavy with whales and sharks. According to a recent Gallup survey, the top one percent of wealthiest Americans own 53 percent of the stock market, while the bottom 50 percent own less than 1 percent of the stock market.
Also according to the Gallup numbers, the overall ownership of stocks by everyday families is in decline — from an average of $50,000 in 2001 to an average of $40,000 today.
Another way to think about this decline of ownership is that it now takes more working hours by the average American to buy the S&P 500.
Crypto and DeFi investors, on the other hand, can get started with a few dollars and build over time.
Even with its near-term volatility, bitcoin is still one of the best performing financial assets available — and especially available to everyone.
Owning the future
Still, zooming out, participation of everyday people in crypto markets isn’t just about investment opportunities. Making sure that crypto markets stay accessible to all levels of investment is also about ownership and control.
One of the biggest risks facing the ideal of a decentralized world, is that it actually won’t be that decentralized at all. If major investors, funds, and organized groups gain enough market share, then they will be able to exert enough influence to control the kinds of decentralized goods and services that are developed in the future.
Concerns about big money and super-sized investors degrading the integrity of decentralized protocols and governance are already appearing. The few but powerful number of validator nodes maintaining the Ethereum network after its switch to proof-of-stake is one example. Another is the recent concerns about the role of venture capital control during decisions about the direction of UniSwap’s decentralized autonomous organization (DAO).
Having more people, with more dispersed capital and ideas, will ultimately make crypto more secure and resilient.
But how do we get there?
The answer, hopefully, is to create the conditions where a billion individual investors feel like they have found a cryptocurrency or DeFi solution that works for them — and one that directly addresses their financial needs.
Maybe this means products and services that are more customizable and differentiated (something that code-based digital assets should be good at), maybe it means continuing to drive into new markets and find new consumers.
Or maybe it just means not viewing big money as a savior for crypto markets.
The emergence of cryptocurrencies and decentralized global networks backed by digital assets provides a massive opportunity for a reshuffle of how critical digital infrastructure is owned.
In a way, the disruptive power of cryptocurrencies is providing a new market solution to a legacy market problem.
The first step needed to achieve the vision of a more evenly distributed and equitable global financial system is to make sure that the shrimp have a place at the table.