Shifting Financial Marketing into Gear
Five Crypto Market Trends and Marketing Opportunities
The market for cryptocurrency, a market that is in total now worth a staggering $2 trillion, is incredibly active and we wanted to outline where it stands in the first quarter of 2022 and where it may be headed in the quarters and even years to come. We’ll explore the top five crypto market trends and marketing opportunities.
The values of the specific cryptocurrencies sometimes zigzag wildly in a way that indicates that fear and greed alternate all too neatly as the dominant factor in these markets, but neither fear nor greed qualifies as a trend. Each is simply an element in the human condition.
We discuss five developments in the crypto world that do qualify as trends, and accordingly as crypto marketing opportunities.
Crypto Trend 1: Improving Environmental Impact
In the original conception of bitcoins, they were conceived of not in large measure as alternatives to central bank-issued currencies, and to the services of banks generally. This is much the way that some people think of gold. The analogy suggests the metaphor of “mining” bitcoins.
How does one mine a bitcoin? By solving a sort of mathematical puzzle. It is called a “crypto” currency because it is mined by breaking a code — a code one needs some high-power computing to solve.
Bitcoin miners own powerful computers that use a lot of power to do this. The blockchains in which one buys and uses bitcoin are proof-of-work blockchains, they carry with them the proof that somebody has done the work to bring this resource into circulation.
According to some estimates such mining now accounts for 0.5% of all electricity use worldwide. In absolute terms that is 130 terawatt hours a year. Roughly half of that electrical power comes from renewable sources. But a study in 2019 estimated that the metric tons of CO2 emissions each year from the generation of the necessary power exceeds 22 million.
It is safe to say, then, that bitcoin is terrible for the environment. The numbers for the other cryptos are lower because bitcoin remains the matriarch of the field.
Some investors with an Environmental, Social, and Corporate Governance (ESG) orientation will shy away from the whole field. Others, though, may want to engage, and take part in emerging creative solutions to the problem of energy-intensive mining.
But blockchain technology really does have the potential to support ESG goals.
Proof of Stake Model
A shift is underway from the proof-of-work described above to proof-of-stake, which has a much smaller carbon footprint. The PoS system does away with the term “miner” and its implied analogies. Participants in the network are simply called “nodes.” Cryptos within such a system are validated by consensus: each node must have a stake in the network and can create blocks proportionate to the stake that (the other nodes confirm) it has.
One problem with such a system is that, given such procedures, the rich will get richer. The larger stakes can get larger. Such mechanisms will produce rapid centralization and a few Master Nodes, an abandonment of the decentralization that, for many, is part of the charm of the whole crypto ecosystem.
There are other approaches, some still nascent, that may preserve decentralization on the one hand and a low carbon footprint on the other.
Proof of Importance Model
The Proof of Importance (PoI) model, for example, uses a range of factors, such as the number of transactions and the net transfer, to determine who can create a block.
The factors over-all work to lessen the dominance of the “whales.” They cannot distinguish themselves merely by the size of their stake.
Crypto Marketing Opportunity
This can all seem complicated (and we’ve only scratched the surface). But crypto firms have demonstrated that they are willing to make their case, to reach out to investors with ESG interests. It was XEM (New Economy Movement) that introduced the PoI concept as a consensus mechanism.
Crypto Trend 2: Global Crypto Regulation
A global regulatory and self-regulatory system is slowly developing around the still-new cryptocurrency industry. Gate 39 Media is a member of the Global DCA (the Global Digital Asset and Cryptocurrency Association), a global self-regulatory association for the digital asset and cryptocurrency industry.
The Global DCA has set three goals for itself: the development of principles-based standards for best practices; education, training, and certification in accord with those standards; and advocacy for an appropriate regulatory environment.
It grew out of a 2019 Chicago event that attracted a lot of that city’s crypto professionals and featured a presentation by then-Mayor Rahm Emanuel, and launched officially in October the following year.
Even before the Global DCA had launched, though, the Working Group preparing for that launch set out its broad point of view in a comment letter to the U.S. Securities and Exchange Commission, commenting on a then-pending modification of the regulatory definition of an “accredited investor.”
Regulation by public authorities is a nation-by-nation patchwork. Japan, for example, has long offered a friendly environment for the industry, but concerns about the security of bitcoin exchanges from hackers/thieves have inspired close attention from the country’s Financial Services Agency (FSA) especially since the Coincheck heist of 2018. Currency exchanges must be registered with the FSA. The registration process can take up to six months and imposes AML as well as cybersecurity requirements.
In China, notoriously, the government is quite hostile to cryptos. In September 2021, it outlawed them outright. Even before that, it had banned ICOs, blocked access to exchanges, then prohibited mining. There doesn’t appear to be much more downside to China.
At the other extreme, in El Salvador since September 2021, bitcoins are now legal tender. The government allows consumers to use bitcoins in all transactions, and it has issued a digital wallet app.
In the United States, many cryptocurrency exchanges market themselves based on their regulated status, on the assumption this reassures investors. They have some choice as to how to characterize themselves.
Coinbase, for example, is registered with FinCEN as a money services business.
Gemini Galactic — a subsidiary of the Winklevoss vehicle Gemini — recently announced it has received approval for a membership in the Financial Industry Regulatory Authority (FINRA) — which will allow it to operate as a broker-dealer registered with the U.S. Securities and Exchange Commission (SEC). FINRA approved it to operate as an alternative trading system to facilitate the trading of “digital asset securities.”
There is now a concern, in the wake of the fighting in the Ukraine, that Russia’s government may use cryptocurrencies to evade the international sanctions. That concern may produce unfavorable regulatory changes in the sanctioning countries.
Regulated Crypto Marketing Opportunity
As a marketing issue, an ICO in the U.S. can be complicated. Some offerers treat their tokens as privately placed securities under Reg D, especially Rules 506(b) and (c) which allow them to raise an unlimited amount from “accredited investors.” Unfortunately, this can mean that buyers must hold the securities for a year before they may be sold. The use of 506(b) has another drawback, it triggers a prohibition of any general soliciting or advertising.
An alternative route to the marketing of ICOs is the so-called mini-IPO rule, or Regulation A+. This lets eligible issuers offer securities to the public, not just to accredited investors.
The crux of this route is the offering circular, which must contain financial statements and other information similar to, but less extensive than, what would be required in a registration statement for a full IPO. It took StartEngine, an equity crowdfunding platform, six tries – an initial offering circular dated June 28, 2018, and then five amended versions over more than eight months — before it was qualified.
The final circular was dated March 7, 2019.
Crypto Trend 3: Crypto Donations Accepted by Charitable Organizations
The list of cryptocurrencies that can now be used to support charities is a long one.
It begins with Bitcoin and Ethereum, of course, and includes the splashy newcomer Dogecoin. But it also includes somewhat more exotic coins such as ChainLink, Gemini, and Maker.
The list of charitable organizations that accept cryptos is also impressive. It includes Water Wells for Africa, the Oklahoma City Community Foundation, Autism Research Institute, and (quite recently), A Leg to Stand On (ALTSO) a nonprofit that provides free orthopedic care, prosthetic devices, wheelchairs, and other assistance to children with limb disabilities in the developing world.
ALTSO accepts donations from forty different cryptocurrencies, including each of those named above. Also, certain organizations active in the crypto space co-sponsored ALTSO’s signature fundraising event last October, Rocktoberfest. One of these was Bitstamp, the Luxembourg-based crypto exchange.
The Giving Block is a prominent cryptocurrency donation platform, one that expects to raise more than $1 billion in 2022. One of the co-founders of The Giving Block said recently, “It’s still pretty early days for crypto philanthropy when you think about the entire nonprofit market, but the rate at which it’s accelerating is extreme because now nonprofits are realizing what a big market this is.”
From the philanthropists’ point of view, it is a benefit that the U.S. Internal Revenue Service treats cryptos as property rather than currency. Donors can receive a tax deduction for the fair market value of the cryptocurrency assets they donate. Selling the cryptos for dollars and then donating the dollars to a charitable would be a big mistake, incurring a capital gains tax.
UNICEF is rare among charities in that it not only accepts cryptocurrencies, but it also holds and distributes them. Its crypto fund is part of a broader venture fund that provides seed capital to companies that develop technologies to benefit children in developing markets.
Many are the hard-working people, trying to raise money for a worthwhile cause, who have received memos or phone calls from their bosses saying, “we need to find younger donors,” or “we need to broaden our sources of revenue.”
Crypto Marketing in Fundraising
For crypto marketers, it is a hopeful sign that the fundraisers have turned toward cryptos as one way of meeting their own needs.
Fundraisers realize that younger people who are otherwise difficult to reach are more likely than their elders to be comfortable with cryptos (94% of crypto buyers are between the ages of 18 and 40) and they are willing to use cryptos as the way to aid a charity. And this source is opening up as others are shrinking — corporate giving has been on the decline of late.
As younger donors and charities meet on the common ground crypto offers, those cryptos become ever more mainstream.
Crypto Trend 4: Blockchain and the Pandemic
The world has been rocked by a pandemic for two years now. Covid-19 has changed everything else, so one might naturally ask: what has it done for, or to, crypto?
One obvious example involves the need for greater efficiency in the control of supply chains. This can be true of any supply chain, but in the early stage of the pandemic supermarket shelves for home-use toilet paper were emptied out. Hoarders were blamed, but the real villain was inefficiency in crisis conditions.
Blockchains, the technology that underlies the cryptocurrencies, are very good at improving that efficiency. In due course they were called into play, and the pertinent supermarket shelves filled out again.
Once vaccines had been developed, part of the public-health challenge posed by Covid-19 was the distribution of vaccine vials. There had to be an end-to-end supply chain from the manufacturer’s premises to a patient’s arm, and a system had to keep track not just of custody but of temperature throughout the chain.
Pfizer’s vaccine for example has a preferred storage temperature of -70C, although the permissible range allows it to get as warm as -60C.
Blockchain proved valuable here. “Smart contracts” (of which, more in a bit) were developed for the blockchain that would allow it to automatically monitor the supply and distribution of vaccination vials: tamper-proof, secure, and cold.
Blockchain Marketing Opportunity
A marketing observation: the pandemic has shifted much of the world of financial marketing to the digital/virtual realm. Blockchains and cryptocurrencies are features native to this world, so this development has likely done a good deal to make the blockchains and cryptos seem mainstream, another option for the balancing of portfolios rather than something esoteric and niche.
Crypto firms can continue to build on this in 2022.
Crypto Trend 5: Cryptocurrencies and Smart Contracts
A smart contract is a computerized transaction protocol that executes the terms of a contract automatically, in such a way as to allow user interaction through a decentralized app (dApp). For example, in 2015 UBS began experimenting with “smart bonds,” self-paying contracts. The automation of the payment stream employed the bitcoin blockchain.
At the time, the chief technology officer for innovation at UBS, Alex Batlin said: “The key attraction is that there is no middle or back office, and no registry, so clearly a major impact on costs.”
The Ethereum network, with its native currency, Ether (ETH) went live at about the same time UBS was running this experiment. In the years following its launch, Ethereum became the center of an explosion of smart contract/dApp use.
Because dApps are decentralized, they avoid the interference or censorship of any central authority. This safeguards user privacy when two anonymous users interact through the blockchain. It also provides a great deal of flexibility for development.
Despite a lot of interest, even though some extremely smart people have been working on their development, smart contracts has attained a reputation as a potentially disruptive innovation of great significance that really hasn’t disrupted much yet. It has been, as teachers used to say of a certain type of student, a case of “unrealized potential.”
Non-fungible tokens (NFTs) represent one recent effort to bring out that potential. NFTs and units of data that, due to a distinctive crypto signature, are each unique.
They are generally associated with photos, or audio-visual files and sold both as a collectible and as a speculative asset. Their growth recently has been explosive. The total value of NFT sales in 2020 was less than $100 million. In 2021, that total was $23 billion, according to Forbes.
Transactions in smart contracts, and especially in NFTs, are naturally priced in cryptos, as they are brothers and sisters of the parental blockchain. Each, then, works to assist in the marketing of the other.
By way of example: in 1958 the famed Spanish painter and sculptor Pablo Picasso created a large ceramic bowl, featuring an abstract but joyful painted face. The bowl has never been publicly displayed: it is in the private collection of the artist’s granddaughter Marina Picasso and great-grandson Florian. This ceramic bowl is the underlying artwork behind an extraordinary example of the marketing of NFTs and of cryptocurrencies (ETH).
That bowl is the inspiration for 1,011 unique digital works that hit the market on Jan. 28, 2022. One thousand of those were dubbed Visage de Couleur, another 10 Visage de Lumière, and the outlier is Visage de Demain. [Respectively, Face of Color, Face of Light, Face of Tomorrow.]
With each NFT, the buyer receives a visual representation of one of these visual representations of the ceramic bowl, along with a song created for the occasion by John Legend, rapper Nas, and Florian Picasso, the great-grandson of the artist. The song is called Tomorrow.
Some of these tokens were auctioned but most were put on the market at a fixed price set in Ethers, 2.0 Ether, or approximately $6,200 each. This example, then, is both a use case for Ether as a crypto and for the smart contracts that made this multi-media sale possible.
In summary, from regulation and philanthropy to smart contracts, supply chain efficiencies, and NFTs, we’re certain that crypto and blockchain will continue to thrive in 2022. And from a crypto marketing point of view, so many new and exciting opportunities will arise – and the Gate 39 Media team is here for it!
Have questions around how to market your cryptocurrency, custody, or digital asset services?
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