The key to surviving this period is to first understand a few things.
- Higher interest rates and higher volatility are likely to be with us for a few years, even if I am dead wrong it’s better to plan for that then to pretend like rates are coming down next year and the bull market is back on.
- Given the leverage and recklessness in the sector the number of firms that are about to fail is going to be high, the number of customers who WONT get their money back is going to grow exponentially, some because of blowups, others because the firms will run out of money. As volumes shrink losses will grow and this will snowball.
- Outlook of the company must change to prioritize profitability over growth, you must get to profitability ASAP by any means necessary (including shrinking the company), profitability is the only metric that will restore user confidence that your company will be around to keep their money safe. Given that bulk of expenses are staff and marketing expenses, both must be shredded in the extreme. Letting people go this year is a far better option then doing it in 2023 when the unemployment situation is likely to be far worse.
- By early 2023 at the latest 70% of crypto users will leave the industry usually out of fear of losing their deposit and most importantly because the easy money and hype that followed it will be dead and gone. Those who remain are likely to be more trading-oriented folks who are attracted to volatility not run away from it. The two primary considerations for these folks will be how safe is their money and COST OF TRADING. This is even more true for those very active traders and those who use trading bots and these users make the BULK of trading revenue for firms even today.
One tactic to consider is for crypto brokers/exchanges to go COMMISSION FREE and become principal market makers on their own flow. Becoming principal market maker also enables you to reduce trading costs for users by minimizing the spreads they transact on, limiting slippage, increase speed/certainty of execution, and most importantly the crypto firm can increase money earned per trade as spreads on most products are quite wide. Truly being one of the lower cost providers in the space enables firms to save allot on marketing as amongst traders real cost savings will spread very fast. Of course some institutions will balk at this change of but for most traders this will not impact their trading strategy and they will choose lower cost over prettier promises specifically individuals actually trading their own money.
At TraderTools our PriceOn™ market making product is a perfect way to implement the principal market making strategy. This product was initially developed for Banks is now live at numerous European Bank FX desks as well as some RetailFX/CFD brokers, is perfectly suitable for crypto firms as well.