The year 2022 was eventful or I would say turbulent for the crypto industry. A year ago, pontificating about the nuances of crypto trading or even talking of investing in multitudes of crypto currencies was a great fad. However, the year 2022 changed all that.
First came the news of a 30 per cent tax on crypto profits as announced in the last union budget. It has been left untouched this year.
Worse still were two big headlines that dominated the media: the Luna crash followed closely by FTX bankruptcy in November 2022.
Both these developments and the subsequent negative press they generated left the crypto asset industry beleaguered. For one, the collapse of the Terra ecosystem and its TerraUSD (UST) algorithmic stablecoin wiped off a whopping $50 billion from the market in a flash. And more recently, FTX, an exchange which the industry perceived as “too strong to fail” simply came crashing down. Besides these two large catastrophic events, the crypto space has also seen many namesake businesses and projects vanishing from the scene along with investors’ funds.
These developments have resulted in a tremendous erosion of faith among customers with regards to investing in crypto. So has the time come to write off the crypto industry? I would say not yet, provided crypto players undertake a host of initiatives to rebuild customer trust that is rapidly waning.
A few simple measures to win back lost customer confidence:
a) Create insurance schemes for protecting customer funds
The million-dollar question that is haunting a customer who plans to invest in crypto is “Will my money be safe?” To counter this, there is a need for an insurance scheme that bails out customer funds, should there be a crash equal in magnitude to FTX. Customers can be asked to parallelly enrol for such insurance schemes even as they think about investing in various tokens and coins.
b) Build revolutionary products to counter 30pc tax on profit
The reason why customers shied away from pouring money behind crypto currencies is that all the current crypto investments are not generating king-sized returns. A survey that I conducted amongst customers of crypto said that they are incurring “heavy losses” in their crypto portfolios.
So, if the industry is able to use its strategic financial acumen to create crypto assets that deliver exceptional returns, customers won’t have any misgiving with regards to paying a 30 per cent tax on profits.
In other words, crypto assets need to become hugely remunerative to ward off the 30pc tax disincentive.
c) Communicate that you are self-regulated
The huge FTX debacle has totally shattered the confidence of crypto enthusiasts. As a countermeasure, existing exchanges need to proactively communicate in all their digital as well as traditional marketing campaigns that they are “well-regulated” and they won’t go the FTX way. Further, the FTX crisis has also made customers feel that there is a lack of strong leadership, internal controls and robust corporate governance mechanisms within their operations.
Therefore, it’s time for the industry as well as crypto exchanges to put in place strong corporate governance mechanisms and communicate the same in their marketing.
Such marketing efforts will result in creating a sense of assurance and emotional safety for prospective crypto customers.
Last but not the least, rating agencies need to act as customer champions. As per an article in cointelegraph, nine months before the fall of FTX, a research was conducted about the platform and the institution that conducted the research had spotted potential flaws that could result in the collapse of the organisation. If rating agencies were involved, this information could have been publicly declared and there could have been some mid-course correction. But alas, that was not the case.
Moving forward, rating agencies need to conduct in-depth studies on various crypto platforms and they should communicate the possible risks to customers. In other words, involvement of rating agencies in the crypto industry could help salvage customer trust.
Although the crypto industry seems to be almost on the brink of extinction, thought-out marketing moves from players may help it come out of the crisis of confidence that it is mired in.
(The author is a former financial journalist and content marketing head at Accenture, Capgemini and crypto exchange ZebPay.)