One Potential Solution to Crypto Market Challenges

03/06

This article is meant as a follow on to the recent article concerning the current state of the crypto markets by Inspira Wealth CEO VJ Angelo. While remaining an educational piece, we apologise for the unashamed promotion of what Inspira believes is one of many likely solutions to the problems in the crypto markets.

As mentioned in the previous article, there is a fundamental flaw in the Crypto markets.  To summarise the points made. The lack of any real substance to most crypto / token issuances leaves the market very vulnerable and with-it investors in times of stress and bear markets.

Inspira is now working with market participants to try to resolve some of the issues underpinning the problems in crypto. To understand how the problems can be solved we must first understand why issuers and investors are choosing crypto.

The key advantage for issuers, outside of any obligations to investors, is the lack of dilution or debt, involved in raising capital via a token issuance. This is a highly desirable aspect of raising capital via crypto. The lack of any obligations on the revenue, capital or assets of the company are also highly desirable but is also the fundamental flaw leaving crypto vulnerable.

The purchasers of crypto are in for big, fast returns. The history of crypto is high volatility, vast price moves and large sums available for investment. Investors have been able to take advantage of big price changes to invest and exit very rapidly making large sums. In a bull market all these aspects make for big opportunities. As the volatility is consistent investors can get in and out fast then re-invest. 

One key advantage of crypto is the technology lends itself to a single token having multiple capabilities. A token can be a utility, payment method and store of value to name just a few. It can also be a security in very rare cases. The crypto market has shied away from anything that has any regulatory touch as a matter of habit and to remain true to the principals of its birth. The belief has been that by avoiding regulation in any form a new economy was being created to eventually challenge and replace the current financial products. That belief is understandable but also leaves investors very exposed, meaning consistent losses, lack of volatility or period of the market being stuck in a tight range below recent investor levels, leaves the market without the cash to support itself without new investment. These same aspects mean new investors will not enter and existing investors will start to liquidate for cash flow adding to the malaise in the market.

Inspira is now working on a product developed in it’s previous guise, LDX, during the last crash as we went into covid. The product is designed to provide all the key advantages of crypto to issuers, add a return to investors that will also provide cash flow allowing them to continue to hold or invest even in the market conditions previously described. 

The Inspira product also provides the ability to add in the other features often provided by crypto issuances. Utility, payments, and store of value amongst others. It can also allow investors to track the performance of the issuer and project future value of the token in the same way one might in equity, and even debt, that is tradable on secondary markets. Like crypto, equity and debt, the Inspira product will be tradable on an exchange allowing investors to enter and exit the investment post issuance. However, the product now means that two key aspects often glossed over in crypto will now be key to investors. Responsibilities to report performance to investors, beyond just marketing to support the price, will now be a feature of issuers investor relations. 

Investors will be encouraged to perform more due diligence and monitor the performance of a firm, again beyond just marketing to support price and entice investors to buy a token for price moves alone. Investors will be able to project the future performance of a business and its token price performance more realistically as a result.

The change in the normal investor and issuer behaviour will also underpin potential consistent returns and cash flow to investors. For issuers it will provide a more stable and consistent relationship between the performance of the token price and the issuer.

It does mean that the huge and rapid price moves won’t be as prevalent in the token markets using the Inspira product. However, one should remember stock markets are not alien to big price moves and volatility, it’s just more tagged to economic fundamentals than the crypto markets, usually.

The Inspira product is also highly flexible in its structure. It can incorporate a wide variety of features that can be tailored to the requirements of the issuer and its investors. Having said that the basic structure is maintained meaning the product is commoditised and one issue can be compared to another for relative value, a key part of any trading market.

The return to investors is based on securitising part of the cash flow to companies and distributing it to investors. The securitisation has been carefully researched to reduce the regulatory oversight as much as possible, but provide investor protection, keeping regulators happy. The product was developed from several existing well developed investment products and markets, that had never been standardised or commoditised before.

We have been deliberately opaque about the final details of the product as we develop the initial issuers and investor base. A new product like this will challenge incumbents and can come under unnecessary attack by those not wishing to see change. We want to make the full launch in the light of successful issuances for our current supporters. However, Inspira does invite anyone with a genuine interest in the future growth and strength of the new economy to contact us to hear more and discuss the product.