The concept of Astralis first came to me during the bull market of 2017, roughly around that time,
China had announced they were banning ICO’s and the market had dropped considerably. For those who were involved in cryptocurrencies at the time, ICO’s always seemed like a bubble but following the price drop, Bitcoin recovered very swiftly and the ICO boom continued that year.
By the end of 2017, the total market cap of the industry peaked at almost $800 billion with Bitcoin touching $20,000 per coin. Everything seemed to be moving perfectly until the great crash. Bitcoin plummeted, as did the wider market, and what seemed to be the slowest year ever for crypto ensued. The year 2018 felt like a never-ending abyss for all that were involved. We were in a bear market.
Post the great crash, interest in cryptocurrencies waned, panic sellers were dumping their bags like it was the apocalypse and ultimately the retail investors were the ones who lost. Much of the information surrounding cryptocurrencies leading up to the crash became less about education and more about aggressive marketing to make retail investors part with their cash. So why do retail investors lose money?
Firstly, it’s important to point out exactly what a retail investor is. A retail investor is someone who is investing individually and are not part of an organisation or ‘institution’. Typically, retail investors will trade in much smaller amounts than your typical institutional investor though, their investment capital can be in excess of a million and so the term ‘retail investor’ does not necessarily imply small investor.
Naturally, this is a crucial reason why retail investors tend to lose money when they are investing, especially when investing in a highly volatile market like Bitcoin. Whereas an institutional investor will have access to a team of highly trained industry professionals in order to make their investment decisions, retail investors are limited to a Google search and the generally available public information that is distributed by various sources.
As a result of this, retail investors often fall victim to misleading marketing materials which either entice them in with the belief of large gains or mislead them in their investment choices. This is exactly what was happening in 2017, retail investors were witnessing a huge surge in interest in cryptocurrencies which were consistently rising in value at a rate which looked unlikely to stop. Subsequently, many of these investors were piling money into ICO’s, which at the time looked to be a get rich quick opportunity, but were left shocked and holding very heavy baggage as the ship inevitably hit an iceberg.
The lack of advisors or team to aid the retail investor in their investment choices means the individuals themselves must decide what is best for them, regardless of their education or investment knowledge, thus resulting in poorer investment decisions.
The next area we must discuss when analysing why retail investors lose money is the lack of services available to the retail investor. In order to properly dissect this segment, we must address the importance and role that securities laws play. Securities laws are designed to protect retail investors from making bad investment decisions based on a lack of information provided as well as, to enforce a strict set of rules upon security issuing companies to ensure they are compliant, not misleading the general public and are brought under the watch of an overseeing regulatory body who will hold misbehaving companies to account.
Why is there a lack of services available to the retail investors in the industry? Regulation. The cryptocurrency industry is very new and thus the old draconian style of regulation we have grown used to in more traditional markets has failed to catch-up. As a result of this, two things have happened; companies seeking to launch regulated products can not or struggle too and what is left are lower quality services with no regulatory accountability attached. This is a cocktail of failure for the retail investor as effectively the same laws designed to protect them are the ones which are failing them.
I am actually against the regulation of cryptocurrency products and services if the regulation is not tailored to the industry. In the early days of Bitcoin, we witnessed the mess that a lack of regulation can cause, which led to an increase in the desire for regulators to come down hard on the industry. However, the regulation that was discussed was the same securities regulation that we use for stocks and shares and regulatory bodies, such as the Securities Exchange Commission, wanted to bring cryptocurrencies under the scope of existing securities laws. This put the industry on edge and fears that regulation would stifle innovation, which it can, became widespread.
However, in Gibraltar, the Gibraltar Financial Services Commission have taken a unique approach to regulate this industry when in 2017 the DLT license was announced. This was a game-changer for the cryptocurrency industry worldwide as, for the first time ever, a major regulator in a region that has had great success in the online gaming industry had structured principle-based regulation for cryptocurrency companies which was there to allow innovation to thrive not kill it. This approach has been met with great success as Gibraltar has managed to lead by example to the rest of the world in how to approach regulating this fast-paced industry as well as entice some of the largest institutions in this space to The Rock. The DLT License can be a case study for regulators all around the world to learn from as this regulation has been embraced by the industry and has actually brought benefit to the companies which have spent their time and money to acquire it.
In order for us to make the industry a safer place for retail investors, we must first decide how we will regulate this industry and design products that aid investors in making better decisions rather than just design ways to extract their money from them. As for regulation, I would propose that any regulator must first educate themselves on blockchain technology, just like they did in Gibraltar. Once they have done this, it becomes clearer how to best regulate this industry and it will highlight to the regulators the value to them that there is in this technology.
Blockchain technology is a self-regulatory system, as we have an immutable public record of all the data that has been exchanged on that blockchain, and what better way to regulate the industry than to adopt the transparency and integrity that already exists here.
Outside of Gibraltar, the regulators are failing retail investors and until a healthy balance between the old and the new is formed this will continue. Thus, it is our duty as corporate entities in the space to design our projects in a manner which embraces this medium and ensure we are offering services which add value and not extract it.