As a new and distinctive industry, it can be easy to forget that crypto is subject to impact from overall economic conditions and market forces, just like any other sector. Crypto business leaders must pay attention to rising interest rates and pivot as necessary to both manage new risks and take advantage of possible new rewards.
From the potential downsides — like difficulties in accessing funding — to the possible silver linings — like new interest in crypto from investors looking to outpace inflation — rising interest rates will certainly bring changes to the industry. Below, 15 members of Cointelegraph Innovation Circle discuss important issues crypto leaders should focus on as interest rates rise, and why.
Education about crypto’s long-term vision
Now — when people are most afraid of high-risk assets — is the perfect opportunity to continue to invest wisely in strong crypto projects, stabilize your own business via whatever means possible and continue to educate the public on the long-term vision behind crypto. Crypto business leaders surviving and coming out of a bear market with successes will strengthen crypto adoption and support. – Zain Jaffer, Zain Ventures
Building sustainable, reliable products
Although people are less likely to invest in something new with the current global financial situation, leaders and their teams should take advantage of the quieter periods to build more sustainable and reliable products that focus on end-users. Times will change, and teams need to be ready for an influx of people. – Steven Talbot, BHero
Challenges in obtaining financing
Rising rates mean debt is more expensive to service and creditors are more apt to include tighter covenants that can impact companies’ operational flexibility or growth trajectory. Equity financing is also harder to come by (the money supply is less copious), and equity can come with more dilution (investors are less willing to pay high, forward-looking premiums), lowering growth-oriented valuations. – Anthony Georgiades, Pastel Network
The cyclical nature of markets
Current inflation and subsequent interest rate hikes are often seen as indicators of an impending recession — it’s not only the crypto winter that has arrived. We should keep in mind that markets, like many things in life, are cyclical. Operating at the forefront of innovation in tough times means that we must be a bit more cautious when the going gets tough, and build for the future! – Sheraz Ahmed, STORM Partners
Investors’ risk appetite
We may have long-term inflation expectations — inflation will be a recurring theme. I think the overall risk appetite will grow exponentially, as family offices and venture funds will race to try to beat inflation by engaging in riskier and riskier investments. This bodes well for crypto, as it is an exciting technology sector that should get most of these investments — however, we should build responsibly. – Jagdeep Sidhu, Syscoin Foundation
The strength of the dollar and its effect on pricing
One of the side effects of interest rate hikes has been the strengthening of the dollar. This causes a major problem in terms of pricing. If the prices you are charging in non-dollar international markets or app or play stores were originally set against the dollar, those prices will rise sharply. – Arie Trouw, XYO
Fundamentals of risk management
No matter how novel the crypto space might be for some, old-school Risk Management 101 will help you stay afloat. The higher costs of funding will render DeFi strategies unprofitable for some traders. This will drain liquidity, and it will make exit options scarce and difficult. Remember the quote from John Keynes: “The market can remain irrational longer than you can remain solvent.” – Carlos Gomez, Belobaba Crypto Fund
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The leveling playing field
As interest rates are hiked, crypto business leaders should keep in mind that the playing field is becoming more level. With traditional fiat organizations losing some of their competitive advantage, now is the time for blockchain companies to seize the opportunity. Being nimble and adapting quickly will be key to success in this ever-changing industry. – Tim Haldorsson, Lunar Strategy
Transparency regarding crypto’s benefits
Where crypto once functioned as a hedge against certain market forces, business leaders should be careful to apply nuance when discussing just how those benefits apply in our contemporary ecosystem. Lately, we’re seeing more correlated movements between TradFi and DeFi as the gap between them continues to narrow. Therefore, leaders should practice transparency when discussing any such potential. – Oleksandr Lutskevych, CEX.IO
The need for stable assets
Make sure you are funded with stable assets in times like this. You don’t want asset prices to move so much that you are out of business. It can be fun to speculate at times, but not at the cost of going bust! It’s your responsibility as a leader to ensure this. – Brian D. Evans, ReBlock Ventures
Providing a safe harbor for investors
Rising interest rates threaten the perceived safety of investments across asset classes. As the cost to borrow rises, the risk-to-reward ratios skew away from aggressive investment strategies to lean conservative. Crypto business leaders should devote extra effort to ensuring that their business offers a safe harbor for investors through regulatory compliance, transparency and trustless systems. – Jae Yang, Tacen
Innovative marketing solutions
We need to go back to the drawing board. With rising inflation and an impending recession, as leaders, we need to rewire our expectations and change the way we go about our business. In fact, this will force us to think outside the box (as an example, the way Reddit marketed its NFT collection), making us come up with innovative marketing solutions rather than following the traditional path. – Dev Sharma, Blockwiz
The right signature for your community
Inject strong fundamentals into your project and/or protocols and focus on the right signature for your community — for example, Ethereum, Cardano and others are long-term investors, while others are speculators. The cost of capital has changed, and liquidity will not be easy to maintain, so be frugal, manage risk and execute well. All cycles eventually change. – Nitin Kumar, zblocks
The need to outperform TradFi
Interest rates are TradFi yield products. For crypto to continue to attract inflows, risk-adjusted yields in DeFi products need to outperform TradFi. Another consideration for the broader industry is the cost of capital. Funding for projects can become more scarce in this environment, shortening runways and forcing business models to evolve. – Shawn Douglass, Amberdata
The importance of searching for meaningful tokens
With the hike to Fed rates, corporate company earnings and other economic factors shouldn’t drastically change businesses’ long-term crypto investment strategy. Given crypto’s history of volatility, prices are just as likely to fall back down as to continue climbing. I would suggest business leaders scrutinize and discover meaningful tokens in the crypto market and invest in them. – Vinita Rathi, Systango
This article was published through Cointelegraph Innovation Circle, a vetted organization of senior executives and experts in the blockchain technology industry who are building the future through the power of connections, collaboration and thought leadership. Opinions expressed do not necessarily reflect those of Cointelegraph.
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