Key Takeaways

You’re reading Crypto for Advisors, a weekly newsletter from CoinDesk that provides insights on digital assets for financial advisors. Subscribe here to receive it every Thursday.

In today’s newsletter, Alex Tapscott explains the ‘flywheel effect’ and its consequences on crypto markets. Then, Natalie Hirsch from Polymath answers queries regarding investments in public crypto companies in our segment, Ask an Expert.

Crypto Image

The Crypto Flywheel Effect

The current interest in crypto has created a so-called flywheel effect, propelling market dynamics to foster growth. This mechanism leads to successive improvements stemming from initial pushes resulting in increased momentum within the market.

The term was introduced by Jim Collins in his book From Good to Great, illustrating how consistent minor efforts culminate in significant outcomes. In the crypto context, this represents how investment demand can drive growth across assets, including ETFs and public companies.

The impact of Digital Asset Treasury companies like MicroStrategy showcases how investments can yield returns that enhance investor interest, consequently resulting in increased demand for shares and underlying assets.

Additionally, the launch of ether-focused asset treasury companies reinforced ETF markets, steering upward momentum for assets like ETH, which surged 50% in July.

The interplay of stablecoin issuances like USDT and their reinvestment strategies demonstrates how profits are utilized to further boost cryptocurrency valuations, solidifying positive feedback within the ecosystem.

However, cyclical market behavior and potential backlashes exist. The interference of traditional markets underperformance can retract investor interest, demonstrating the need for cautious involvement in crypto’s volatile landscape.