After the initial success of cryptocurrencies such as Bitcoin (BTC), interest from investors in new crypto tokens, sometimes referred to as altcoins, has never been higher. So how does the release of these new digital assets impact the market? What is driving the current demand for blockchain-based currencies and apps?
Let’s take a look at the crypto market as it stands, assess the threats and opportunities, and look at how you can scale as a merchant involved in the digital currency space.
Cryptocurrencies Continue to Enjoy Months-Long Bull Run
It’s not just Bitcoin that has been enjoying record gains over the last year or so. Other leading virtual currencies such as Ethereum, Ripple, and Litecoin, to name but a few, have all posted significantly double and triple-digit gains during the pandemic.
Much of the interest has derived from those within groups such as the infamous Reddit Wallstreetbets subreddit, who are on the lookout for alternative investment instruments in place of traditional stocks and real estate. Amateur investors today are taking a critical look at existing financial institutions and current regulators, such as central banks that control fiat currencies, and asking if cryptocurrency presents a better medium of exchange or store of value.
With the advent of open-source distributed ledger technology and stablecoins tied to fiat currencies such as USD, many think we could be at the dawn of a new age of transactions.
Other investors have been swayed by celebrities who have tweeted their support for certain altcoin crypto assets. Even Dogecoin, which has no real-life use case, has received a bump in investment. Elon Musk, Snoop Dogg, Gene Simmons, and even Kevin Jonas have all promoted the joke coin, which has sent their fans flooding over to crypto exchanges such as Coinbase and Binance to pick some up.
But whether you believe in creating a new decentralized financial services ecosystem built on blockchain technology or you merely want to speculate small amounts of money with cryptocurrency markets famed for their volatility, those in this space do need to be aware of the dangers.
Cryptocurrencies Under Threat from Regulatory Bodies, Influencers, and Scams
While most investors have enjoyed huge gains over the past 12 months, there have been subtle reminders of the dangers of investing in such a young and under-developed financial instrument.
The celebrity or “influencer” effect in itself is dangerous. When they tweet about a coin, prices can rocket and then subsequently plummet. Elon Musk is already facing an SEC probe since the correlation between his tweets and the price rocketing may amount to market manipulation in their eyes.
Speaking of the SEC, Ripple is also embroiled in an ugly battle with them regarding a perceived $1.3 billion unregistered securities offering. Their practices, including their Initial Coin Offering (ICO), have come under scrutiny. Commentators are saying the case could go either way. If Ripple loses the case, all investors holding the cryptocurrency could lose their money into the Ether.
Worse, it could have a worrying knock-on effect for the rest of the industry. The SEC may start pursuing more companies for the perceived selling of unregistered securities.
Scams are increasing prevalent too. According to LinkedIn, investors lost £ 27m to cryptocurrency scams in the UK alone. That figure is likely much higher for counties such as America.
As with all investing and speculation, it’s up to the individual investor to ensure they have completed due diligence on their altcoin of choice. One of the best ways that ensure that you’re investing in a legitimate coin is to ensure it has a real-life use case. Let’s take a look at a couple of examples of recently-launched coins and how they intend to be used.
Are you a FinTech startup looking to launch your own cryptocurrency exchange? Read our ultimate guide that includes everything you need to know about payment processing for crypto exchanges!
New Altcoins Making Waves in The Crypto Industry
As mentioned, we’re going to take a look at a couple of coins that have been making waves in their respective arenas, mainly because they have real-world applications that could dramatically improve their industry.
The SportX token was launched to address one of the biggest problems in the gambling industry, how sportsbook operators make their money. In essence, traditional bookmakers can only win their money when their customers lose. Therefore they skew the odds in their favor, ensuring they always take a little off the top. They’ve also been accused of hiding valuable insider data and banning customers who continue to win.
However, this sports gambling startup eliminates the need to operate in this manner. The SportX token funds and facilitates a peer-to-peer exchange where fees are charged as a percentage of net profits. This removes the incentive for owners to ban profitable bettors and instead encourages betting volume and liquidity.
Lastly, it also buys investors a slice of governance over how the betting network is run, delivering far greater transparency.
Founded by Ethereum co-founder Gavin Wood, Polkadot is perhaps one of the most ambitious altcoins out there. Its aim to deliver complete interoperability between blockchains by using a smart contract technology known as “parachains.” This interoperability seeks to establish a fully decentralized and private web, controlled by its users, simplifying the creation of new applications, institutions, and services.
The company, which is based in the “Crypto Valley” of Zug, Switzerland, has already amassed a DOT (name of their token) market capitalization of over $32 billion. Since its launch last year, the coin has since become a stable fixture in the top 10 cryptocurrencies by market cap.
Polkadot’s DOT token serves three clear purposes: providing network governance, validating operations, and creating parachains (parallel chains) by bonding.
Remember the historic Equifax hack back in 2017? Well, that event (among the many others since) proved the catalyst for Filecoin.
Its aim? To store data in a decentralized manner. Unlike cloud storage companies like Amazon Web Services or Microsoft Azure, which are prone to centralization problems, Filecoin leverages its decentralized nature to protect the integrity of a data’s location, making it easily retrievable and hard to censor.
Filecoin is an open-source protocol backed by a blockchain that records commitments made by the network’s participants. Transactions on the network are made using FIL, the blockchain’s native currency (token).
Cryptocurrency Exchanges Best Placed to Take Advantage of the Boom In Demand
From New York to Singapore, cryptocurrency transactions are soaring. But Europe presents the best place for crypto exchanges to operate, with clearer regulation and an easier ride securing the correct licenses.
However, while developing your own software, registering your exchange business, and acquiring the correct financial licenses may be relatively straightforward, navigating payments isn’t quite as simple.
While you might be in a great position to capitalize on demand, securing payment processing for crypto exchanges is notoriously difficult. Third-party options such as PayPal simply aren’t an option.
Therefore, you need to prove to acquiring banks and payment service providers that your crypto exchange is worthy of a specialist crypto merchant account. The industry is rife with allegations of money laundering, scams, and other forms of e-commerce fraud.
Thus, you need to take actions that impress underwriters evaluating your business. Start instituting extensive KYC checks, ensure your business is AMLA-compliant, and build up substantial results in fiat currencies to reduce the risks associated with volatility.
You also need to ensure the exchange platform you’ve created is yours. Running white-labeled software from a FinTech company (no matter how good) will see your merchant account application rejected. Running a platform on someone’s software is just too much of a risk for banks to handle.
Finally, you need a team of payment experts in your corner. While this is still an emerging industry for many, we have helped merchants in the crypto space for over a decade. We have long-standing relationships with banks willing to work with cryptocurrency exchanges. Our experience in navigating the specific regulatory and compliance will also prove invaluable when trying to scale your exchange.
Choose DirectPayNet for Your Crypto Merchant Account
There’s never been a better time to be involved in the crypto industry. Better still, cryptocurrency exchanges are the platforms in the best place to take advantage of this pent-up demand. But gaining payment processing for your exchange is becoming harder than ever with fluctuating regulatory and financial requirements.
That’s why you need the help of the experts of DirectPayNet. We’ve been helping merchants in this space for over a decade to accept online payments and scale their crypto businesses.