Smart Money’s Impact on Crypto’s Original Promise: A Closer Look


Ignoring the original, utility-driven ideas behind digital cash, smart money has become the driving force of cryptocurrency adoption. But are new price tickers a sign of innovation? 

The paradox of invention and new technologies is that culture influences technology, while technology influences culture. But the case of cryptocurrency is more curious because it is not used in the way the inventor originally proposed. This has led to some arguing that its current interpretation – primarily as an investment instead of a transactional unit – may be more harmful than beneficial.

Smart money is a key factor in discussions of new technologies, regardless of the industry or markets. This capital is essential for innovations, from JP Morgan financing Thomas Edison’s inventions to venture firms driving the internet startup equity bubble from 1995 to 2000.

But when there is a lot of investor involvement, inventors and builders can face issues. The main concern is that smart money utility can be a limiting factor and the lack of discourse around this in the DLT space.

The problem of crypto adoption may not be as bad as it seems, as only small, tightly-knit communities are working on more attractive use cases. This has, however, created counterproductive markets where investors presume intrinsic value from either scarcity or thin air, and utilitarian side of novel systems is only seen by underdog pioneers.

Additionally, the nature of cryptocurrency ecosystems, token design, their relation to fiat currency and the lack of regulation have made market manipulation easier and more attractive to malicious actors. Wall Street Journal reported that groups of online traders who collaborate on pump-and-dump schemes have manipulated nearly $1 billion in 2018 alone.

The idea of decentralization has been a potential solution to the problem of market control and influence. But, even in the early days of crypto, when the “whales” were just appearing, potential problems such as concentration of wealth and purchasable network control began to emerge.

This has led to the mainstream idea that crypto works best as an investment, usually because of limited supply or just plain virality. This, in turn, has meant that newly minted crypto enthusiasts enter the space with a crypto-as-an-investment mindset and introduce crypto to their friends as a “buying opportunity”, creating a cycle that vaguely resembles a pyramid scheme.

Ultimately, blockchain technology does not stagnate because of the ever-increasing involvement of smart money. But, if early crypto adopters had focused on implementing the ideas explored in the now-famous Bitcoin white paper instead of seeing crypto as a forex market, today’s cryptocurrency use cases could look very different.

Smart money brings crypto into the public eye by investing in tokens or startups, but it also has its downside. Wall Street Journal reported that groups of online traders who collaborate on pump-and-dump schemes have manipulated nearly $1 billion in 2018 alone.

Although it is hard to say if there is a solution to this cryptocurrency abuse, it is important that the ideas of underdogs who are working on things like decentralized file storage, off- and on-chain data and transaction scaling are appreciated, acknowledged and introduced to smart money as often as possible. This could help users shake off the idea that crypto can be little more than an investment.

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