Expert: how high liquidity harms blockchain

Matt Ward – an entrepreneur, a business angel and a crypto enthusiast who runs a podcast for venture traders at The Syndicate, is sure that blockchain is not only able to revolutionize the economy, but also bring significant changes to politics and society as a whole. However, according to the expert, highly liquidity does not so much impede the development of this technology, but also interferes with the ability to develop innovative solutions.


High liquidity is determined by the ability of the market to sell or purchase this or another product at a price that is short of the market price. For all this, the faster transactions with assets are, the more accurate their market valuation is, and as a result, the asset is more stable in the long term, but more volatile in the short term. The stock market seems to be a wonderful example – the distribution of algorithmic trading in realistic time mode affects the rapid progress of general market volatility (compared to other assets). Ultimately, insignificant changes (income reports, political instability, irregularity, and so on) can have a multistage effect.

Therefore, a balanced portfolio of securities is forced to include all kinds of assets in terms of liquidity: stocks, bonds, number in a mutual investment fund, gold, real estate.


The superiority of bitcoin and other cryptocurrencies (and perhaps their key drawback) is liquidity. The unstable and speculative nature of the cryptocurrency market, coupled with almost instant liquidity, provoked an infusion of a huge pool of capital. But in the Wild West, becoming a millionaire is as easy as losing everything.

As the holder of such cryptocurrencies like ether, bitcoin, lightcoin, and monero, I have a couple of options: hodl, or an attempt to predict market movement in such a way as to realize at the maximum and purchase at the minimum. What does not differ from the main principles of stock trading.

However, here I see a big question for the cryptocurrency market. And that’s why.

Venture capital

The usual investment of venture capital in private companies occurs in the early stages for the sake of extracting the noble came through investment. The nature of business (and life) is such that it constantly follows the laws of Pareto, unanimously in which 20% of firms deliver 80% of the profits. 20% of 20% (then consume 4% of the total) deliver 64% of all profits. Except ad infinitum.

These are the rules of the circle of investment in the early stages. Orientation in order to double your investment, agrees side by side with high losses through unused opportunities.

Venture Capital Fund Structure

Naturally, venture capital funds are organized for 10 years with the prospect of a need to continue this period for 2 years. This unvarnished run is necessary, because for a mediocre return of investments, a startup needs about 5-7 years, (a) that if it goes to an IPO, then it lends a lot of time again.

This is a very long time for hodl.

The reason that earnings through venture capital investments always outstrips all other asset groups is the lack of liquidity.

Suppose, but for no reason, they discovered bitcoin in 2010 and invested in it after $ 0. 10 / coin. Looking immediately at past events, it’s free to think, but there wouldn’t be, probably, decided to hold their cryptocurrencies before 2017, however, if it is practical to assess the situation, such a formation is unlikely.

Let’s say your investment raised $ 100, which means that now you would have had 1000 bitcoins worth $ 80 million. if you look at things frankly, you have to admit that as your investments would have increased 10 times 100 times, the location would have been GREAT. $ 10,000 is a new car, and $ 100,000 is a small house. Actually, after this root cause on the cryptocurrency market, bitcoin billionaires and very apparently invisible pizza for 10,000 bitcoins are now not enough.

When working with traditional venture capital, such a problem is sometimes encountered – traders have not so many abilities to sell, which is why they hold. So, St. Petersburg Til froze a millionaire – he invested in facebook and was waiting for the release of the mash for IPO, in order to inherit the profit. In the blockchain, such a situation is impossible.

Imagine that in the 70s and 80s manufacturers of fine batteries calculated that they could sell panels for $ 40 — a cost equal to the cost of a barrel of oil. In this case, every time, sometimes Malta creeps up to the mark of $ 40, then venture traders and ingenuous buyers would find enthusiasm for the good batteries, investing in them. However, with Malta prices dropping further $ 40 after a barrel, good panels would lose their competitive advantage and investment. Hitting a moving target is not easy.
This is exactly what is considered a blockchain company – long-term stability is impossible, sometimes an inconsistent push decides which brews will survive and which won’t. Rome was not built in a day.

Public Markets Kill Innovation

The public arrangement of promotions is a lot of work, delay and responsible financing, which distracts from the primary problems of developing a business. However, in my opinion, the maximum problem with the public premises is such expectations and short-term judgment. Consume the reasons Wall Street rewards executives who reduce staff and overhead — as if it looks better.

However, for business this is a bad approach. Installation of startups is to improve and introduce innovations, but do not act with numbers for the sake of shareholders. That’s why startups are trying to break into a cake – their needs are not enough public opinion. The rapid development, inaccuracies and the search for a conclusion to these errors in a hurry are the basic principles that lay in the process of creating value. As Reed Hoffman said:

“A startup is like jumping off a cliff and trying to assemble a plane while flying down.”

There is not a single startup, some would obviously follow the business plan under study and would bring the creators a billion bucks in revenue. However, the problem is covered here.

Investors want liquidity

Bearing in mind the reasons above, some unicorn companies (companies valued at more than $ 1 billion) defer a public offering. This creates a holistic ecosystem of problems.

Venture traders and their investors need liquidity. Ultimately, the startup must work out the investment and, at the same time, inherit the profit. Without liquidity, such big investors as pension funds and university endowment funds will not have the necessary capital in order to invest in other startups.

A similar lack of ability for the sake of exit (in conjunction with the potential of the blockchain) entailed, according to which some venture traders focused on the cryptocurrency market. The level of such noble liquidity is ideal for them. However, I am alarmed by the consequences of a certain liquidity for such an early stage. Sometimes founders, traders and advisers have the likelihood of leaving the project, as soon as its token is exhausted for the ajar market, what will hold the installation of designers together? And what most characteristically will stop them from exiting, sometimes not the most lightweight times will come in time? And why does no one ask these questions?

In pump-and-dump schemes and fake plans, there is so much money that the whole industry looks like just an order to quickly earn lightweight money. ICO is only the emergence of work, but not its end – the front endless and intricate path, solely in order to start. That’s why you stop managing and go on to found and develop.

Mutual Assured Destruction

During the Cold War, the danger of bilateral liquidation forced both the United States and the Council to observe the stipulated framework. This, of course, is an extraordinary example, but in the final analysis, it is possible to draw parallels between this situation and the blockchain technology. How can founders, traders and users utilize preferential measures in order to prevent unnecessary behavior? Especially, sometimes the user does not have the same opportunities that the founder of the plan and the investor consume?
The likely conclusions of this state of affairs are the composition of the deposit of the token, the agreement on the hosting and the dispersed management so as to always keep the agreement.
In this case, regulation itself will be of paramount importance. Exceptionally pierce the future, why is it worth believing without proof of white paper? Instead of this, blockchain companies and start-ups should acquire the nature of such a dynamically developing bazaar and intend for what they temporarily need to diversify into an agreed upon procedure.

Instead of a conclusion

There is a relationship between liquidity and long-term growth, the usefulness of which some cryptocurrency market investors are not happy to value.

Sometimes the founders are free to “launch” freshly baked projects, earn rapid profits, get out and move on – such a problem. Sometimes “investors” earn a double benefit and get out of the project, as soon as he completes the ICO – this is a problem.

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