Solving the Mainstream Adoption Problem
19 June, 2018 | 5 MIN
Here at Dacxi, one of our goals is to disrupt the crypto exchange market. In fact, we’d like to be the number one community exchange brand in crypto. If we can achieve this, we think we can solve the mainstream adoption problem. That’s right, we’re going to onboard the next wave of mainstream crypto buyers into crypto. That means up to 500 million new buyers by 2022. These are lofty and ambitious goals and that’s what makes it so exciting. To understand how and why we think that these goals are worth pursuing it’s important to understand more about the exchange market, and what we mean when we say, “community exchange”.
The crypto exchange market is recognised as a hyper-growth industry. From January 2017 to May 2018 the market went through an incredible growth cycle with Coinmarketcap.com data showing that 24-hour exchange volumes grew from an average of US$150 million per day to over US$15 billion per day. That’s a quite remarkable 100X growth. During the same period, the total crypto market capitalisation grew by 20X. Therefore, exchange volumes grew by 400% more than the market cap.
While the value of most crypto assets is based on the potential of an idea, exchanges are operational businesses based on sales, costs, margins and profits.
The exchange sector’s success is demonstrated by recent announcements such as:
- Coinbase claimed $1 billion revenue in 2017
- Binance launches in August 2017 with a $15 million ICO and less than a year later is one of the leading exchanges by volume and user growth
- Poloniex sells for $400 million to Circle
- There has been an explosion in both user volume and in the number of exchanges around the world
- Most exchanges have struggled to scale as they grow
To get an idea of how the exchange market is likely to develop, it is important to understand the types of crypto buyer. In sectors such as equities, the two main groups of buyers are Institutions or Retail (individuals), with Retail splitting into ‘Trader’ and ‘Buyer’ to create three distinct types. These three types are also seen in the crypto market:
1. Institutions. These are companies involved in trading or purchasing crypto, such as banks, funds or family offices. To be actively involved they have specialist requirements such as licensed exchanges, high liquidity, low fees, market analysis, hedging derivatives and custodian services.
2. Retail Traders. These are individuals that trade crypto on a regular, sometimes intra-day basis. Their equivalent are day-traders in equities or FX markets. They rely heavily on charts, analysis, rapid information and the ‘technical’ aspects of trading. Many use leveraged trading which has been a main driver of the leading Asian exchanges. High liquidity, low fees and exchange speeds are important.
3. Retail Crypto Buyers. These are mainstream individual buyers who are focused on mid to long-term time frames. They are not interested in the intensity or risks of trading. They make up to 99% of the retail market.
Mainstream Retail Buyers are faced with a number of barriers to entry that must be overcome before they are likely to purchase crypto assets. At present, most retail buyers struggle with the basics of on-boarding into crypto from fiat. Crypto’s learning curve is steep, and overwhelming for the vast majority of the market. This is the problem that Dacxi wants to solve.
THE NEXT GROWTH WAVE
- The first ‘pioneer’ growth wave in the crypto industry from 2009–2018 was driven by crypto pioneers and retail traders mainly from China, Korea and Japan. Many from the FX trading community also became involved in trading crypto. After the dramatic spike in growth in the final months of 2017, there has been a consolidation period in the first half of 2018. This period has seen many positive developments aimed at legitimising the crypto space. These include customer service upgrades, compliance and security upgrades, new regulations and services for institutional buyers. Many high profile financial organisations have signalled their intentions to enter the crypto space.
- Unlike the ‘pioneer’ wave, the next global growth wave is likely to be driven by two new sectors. These are: Institutions and Retail Crypto Buyers. The Institutional sector has the knowledge and access to advanced tools and resources, but it is the Retail Crypto buyer sector that has the numbers needed for crypto to go mainstream. Without them, crypto will remain a relatively small emerging sector.
RETAIL CRYPTO BUYER CHALLENGES
While the end of 2017 was memorable for the FOMO (Fear of Missing Out)
driven crypto-boom, very few retail or mainstream buyers have started actively buying. The level of awareness of crypto and desire to get involved versus actual participation do not match up. At present it is estimated that only around 0.5% of the It is estimated that around 0.5% of the global population (approximately 32 million people) own some form of crypto assets. Retail buyers are expected to get involved in the crypto asset space once they perceive it as simple, accessible and once they have the confidence to do so. The key demographic is millennials who increasingly connect with crypto as an asset class, rather than equities that tend to appeal to older generations.
Existing Retail Traders and new Retail Crypto Buyers have fundamentally different needs and confidence levels. Both wish to participate in the next crypto market bull cycle, but are at very different stages of their crypto journey.
Current Barriers to Entry for Retail Crypto Buyers
- Retail Crypto Buyers search for the information they need to become successful. They soon find themselves bewildered by the complex, specialised material on news sites, social media and discussion platforms.
- Retail Crypto Buyers are less likely to use specialist platforms such as Reddit, Telegram or Twitter and are unsure how to access accurate information streams.
- Retail Crypto Buyers are intimidated by the technical nature of trader exchange interfaces.
- Retail Crypto Buyers are vulnerable to the scammers that target new people entering the industry.
- Retail Crypto Buyers find it difficult to access the support and content they need to build confidence.
- These barriers to entry have slowed the adoption of crypto assets. To date, the industry remains dominated by traders, the tech-savvy and the very determined.
The Retail Crypto Buyer sector needs an environment that protects and empowers its members. That’s where Dacxi comes in.
There are currently two main types of crypto exchange.
- Trader Exchanges. This kind of exchange is designed for traders. They feature user interfaces that are proven to support traders and are similar to FX exchanges with large numbers of trading pairs, tools and charts. Many Trader exchanges only support crypto-crypto transactions. This means only confident crypto-traders can access their services as this requires existing ownership of crypto assets. Leading Trader Exchange examples are Binance and Bittrex. The emerging sub-categories of Trader Exchanges are Institutional Exchanges such as Coinbase Pro [GDAX] and Decentralised Exchanges such as IDEX. No current Trader Exchanges have the ‘Community’ platform needed to support Retail Crypto Buyers.
- Wallet Exchanges. These exchanges are designed for buyers who are new to crypto. They have a simple user interface, support leading coins and are focused on a mobile wallet. Their natural evolution is to become a banking / payment platform. Leading examples are Coinbase and Blockchain. Whilst the user interfaces of wallets are easy to use, they lack an effective ‘Support Community’.
THE DACXI BELIEF
Dacxi believes that the current crypto industry is not designed to attract, engage or empower the potentially massive global retail buyer sector. Dacxi was founded by global experts in customer acquisition, engagement, education and retention. Our belief is that there is a gap in the market for a completely new community-driven exchange ecosystem designed to support retail buyers.
This ecosystem is based on a new type of community and is called a ‘Community Exchange’.
THE COMMUNITY EXCHANGE
In simple terms, the Community Exchange is a community-driven ecosystem designed to empower and protect mainstream retail crypto buyers. It delivers:
- The discussion, content, education opportunities, analysis, confidence, inspiration and support that new buyers need to make effective decisions
- A dedicated community platform where buyers can learn and discuss the tools and strategies required before risking significant capital
- An accessible mobile led platform with push notifications to drive engagement and build confidence
- A live educational / inspirational platform that provides both large and small interactions such as live streaming, coaching, experts, meetups and events
- A focus on simple exchange interfaces so that busy individuals in whatever country, language or currency in which they operate, can purchase
- A platform that allows for individual and group discussions on anything related to crypto asset buying in a supportive and empowering community environment
- An awareness that crypto purchasing is speculative and comes with many risk factors that must be considered
MARKET EXCHANGE POTENTIAL
To consider the potential of the new Community Exchange category, we use the following logic.
Total Crypto-Asset Values
The total market cap of all global stocks, gold, bonds and cash is approximately US$200 trillion. The current total market cap of all crypto assets is approximately US$326 billion. If just 2% of the former makes its way into digital assets via institutional and mainstream buyers, the current crypto market cap could increase by another 10X, or US$3 trillion.
Using Coinmarketcap.com we can roughly estimate average monthly exchange turnover. In the period March-May 2018, the average exchange turnover was at least $15 billion (per day), so average monthly exchange turnover was approximately $450 billion. That means an estimated 2018 exchange turnover of $5 trillion.
As a comparison, the annual turnover of the foreign exchange market is estimated at over $1500 trillion, so crypto turnover is less than 1% of that amount.
Given positive projections that the crypto market will achieve double the high levels of December 2017 by 2020, we estimate daily turnover at $150 billion with an annual exchange volume of $50 trillion.
Given the volume produced by margin trading on Trader Exchanges and the expected high turnover of simple exchange transactions through Wallet Exchanges, it is estimated that Community Exchanges will account for 3–5% of global exchange turnover or $1.5–2.5 trillion per annum. Dacxi estimates the Community Exchange market will have a value of $1 trillion.
HOW MANY RETAIL CRYPTO BUYERS?
It is estimated that around 0.5% of the global population (approximately 32 million people) own some form of crypto assets. Retail crypto buyers are expected to get involved in the crypto asset space once they perceive it as simple, accessible and once they have the confidence to do so. The key demographic is millennials who increasingly connect with crypto as an asset class, rather than equities that tend to appeal to older generations.
Given a classic bell distribution curve, and the market growth experienced in 2017, we suggest that at least 500 million buyers will purchase by 2022. This could happen by 2020 if the market grows at the speed of late 2017 when Binance famously grew from 1 million users to 7.9 million users in 97 days.
Dacxi is confident that the next market upcycle will be driven by two new groups — Institutions and Retail Crypto Buyers. The two current types of exchanges are either too intimidating and / or lack the community, support and educational resources that Retail Buyers need to confidently purchase. The solution is a new category called the ‘Community Exchange’.
The Community Exchange category will empower and protect Retail Buyers. Whilst they have high support costs, the margins achieved are higher than other exchanges.
A predicted 500 million Retail Crypto Buyers will drive $1 trillion in exchange volume by 2022. And that’s how Dacxi will disrupt the current exchange market. We are pioneering the new community exchange category. We’re building an entire ecosystem. And the first MVP versions of each platform are either in beta, or already live. One of our strongest points of difference is that unlike most ICOs, the business is already in market. Everything is real, we just need customers now. And then we need to keep improving all platforms as fast as we can as we scale. Like we said, ultimately the goal is to solve the mainstream adoption problem. We’re going to onboard the next wave of mainstream retail buyers into crypto!