Who Will Survive Crypto Winter - Only the strong will survive!

9/18/2022, 11:42 AM
Who Will Survive Crypto Winter - Only the strong will survive!
The current crypto winter has been tough on small investors who have been stung by high transaction fees. However, there may be some relief in sight if crypto companies take a page from the playbook of stock exchanges.

Business diversification and lower fees could help foster the sustainable growth of some crypto businesses. For crypto small investors who have been plagued by high transaction fees, a breath of fresh air may be on the horizon.

  • Business diversification
  • Lower fees
  • Improved staking and subscription services
  • Mergers and acquisitions

As the markets for cryptocurrencies experience a prolonged winter, consumers have been able to take a break by looking at a stock market trend that began on May 1, 1975. While Bitcoin fees have gone down as the price of the cryptocurrency plummets into the low $20,000 range, Ethereum fees were 100 times higher than Visa's average transaction revenues last year.

Lower fees and diversification are key to survival. For traders who use payment processors and brokers, the picture looks bleaker. Payment processor PayPal announced changes to its fee structure early this year, charging 1.8% for cryptocurrency transactions up to $1,000 and 1.5% for transactions over $1,000. Coinbase charges a 1% fee on all cryptocurrency transactions, but the costs vary depending on the size of the transactions at this point. Binance can charge up to 4.5% for debit or credit card purchases and 0.1% fee for trading and 0.5% for instant buy/sell.

But the stock market provides a ray of hope as stock buyers and sellers have not paid even 1% to stockbrokers for many years. Stockbrokers are individuals or firms that charge a brokerage fee or commission to help customers buy and sell stocks.

On May 1, 1975, the U.S. Securities and Exchange Commission decided that stockbrokers could no longer charge fixed commissions for trading stocks following a mass exodus of stock investors five years earlier. This led to a decline in commission rates of 20% between 1975 and the mid-1980s, which helped boost trading revenues as trading volume increased.

But the stock market also deployed another powerful weapon when stock trading volume stalled in the mid-1980s: diversification. Research, asset management, and banking services broadened the revenue base of the securities industry, with auxiliary services making up more than 80% of stockbroker revenue by the 1990s.

Coinbase recently announced its staking service and a new focus on subscriptions in order to lead it through the market winter. Subscriptions and services made up 18% of the exchange's revenue in the second quarter of 2020. Earlier this year, it also sold cryptocurrency tracking services to the U.S. government.

Only a handful of crypto companies have been able to offer lower fees and business diversification. FTX.US, the American arm of FTX, recently began offering commission-free stock trading and is offering customers shares of Apple (AAPL) and Tesla (TSLA). FTX Ventures, the VC arm of FTX, recently acquired a 30% stake in SkyBridge Capital from Anthony Scaramucci.

If the Wild West is coming to an end and the strongest players survive, Reena Aggarwal, a senior official at Georgetown University, expects consolidation.

Diversification into staking and derivatives could be hampered by regulatory hurdles. Recently, SEC Chairman Gary Gensler commented that Ethereum's recent merger could have turned the blockchain's native token, ether, into a security, which would potentially require exchanges that list it to register as a securities broker or remove it from their platforms. This would impact exchanges that offer ETH staking.

Mergers and acquisitions could be scrutinized by consumer watchdog groups like the Federal Trade Commission, which tries to protect consumers from anticompetitive practices and market abuse by dominant players.