“I don’t invest in crypto”
Many see the potential of blockchain technology, but few dare to invest in crypto. Are they any different?
In a continual effort to “feel the pulse” of the market sentiment towards crypto investments, I reached out to several LinkedIn connections. My question was simple: “ What is your opinion of blockchain technology in general and cryptocurrency investments ?”
I received the following answers:
“On the blockchain side, it is clear that this technology is going to take more and more important in the financial exchanges and become the future standard. However, my view on cryptocurrencies is rather unflattering. I think that it is difficult to trade assets that have no economic value and I am not convinced.”
“I don’t believe in crypto investment, too volatile/unstable for me. However, I believe in blockchain and in the range of applications it could bring to our economy. I think it is a revolution even if I’m more interested in AI for now.”
“I steer entirely clear of cryptocurrencies but am a big fan of the blockchain.”
“Blockchain technology itself is brilliant however cryptocurrencies are still unstable, unregulated and insecure as an investment. It is a high-risk instrument which ultimately falls into vehicles for gambling. Multiple instances of cryptos have already been stolen in one form or another. Until the technology for securing them matures and becomes proven, they will likely remain that way. It’s all a matter of time but as of yet the time is not now.”
“I am pretty sure that in the next 1 or 2 years they will become part of daily life. I, personally, haven’t invested in anything related to the blockchain, up to this moment, because I still want to see the development.”
As you can see the overwhelming opinion is
BLOCKCHAIN = GOOD and CRYPTO = BAD
Allow me to share my opinion on the topic, it’s simple
BLOCKCHAIN = GOOD and CRYPTO = GOOD
By “crypto” in this context, I mean both cryptocurrencies & tokens. It’s also worth noting that the term “cryptocurrency market”, while accurate several years ago, is now an inadequate representation of what the market is. The reason for this is the vast majority of assets that comprise the market now are not currencies such as Bitcoin and Monero, but crypto tokens which have more in common with stocks or commodities than currencies.
Blockchain as a technological but also social phenomenon
Blockchain technology is a very inspiring phenomenon both technologically and socially, and it also challenges many current business models in their very foundations — these are models in banking, supply chains, data management, etc.
Joe Lubin, the co-founder of Ethereum and founder of ConsenSys, shared in his Forbes interview that society is just starting to reconstruct itself to use this new database technology. Society has to build shared, collaborative, trustworthy infrastructures within and across industries instead of a siloed walled garden systems, and it’s not going anywhere.
Indeed, without a doubt, we have passed the point of no return for blockchain, it is here to stay, and many big companies are already making substantial investments:
- Tech companies (IBM, Facebook, Microsoft, etc.)
- Financial companies (Most big banks already started or completed pilots, some of them participate in consortiums like R3 or the Enterprise Ethereum Alliance )
- And many others from the retail sector, energy sector, car manufacturing, pharma, etc.
The line between private and public blockchain is thinning
We have had clients asking “…well, that’s good for these companies but how does that affect our investments in crypto? ” In his article, Petko Karamotchev, who is the founder of INDUSTRIA.tech, argues that the division between private, enterprise blockchain solutions and public blockchains is blurring. Indeed, not all data is meant to be public, but earlier this month, it was announced that Hyperledger (“private”) which is a cross-industry enterprise blockchain solution and Enterprise Ethereum Alliance (“public”) decided to work together toward the common goal of solving real business challenges with decentralised technologies. This means that soon, we might see an increase in permission blockchains linked to public ones which will create a natural demand for the public blockchain tokens and therefore increase in price.
How to justify crypto’s price
Most of the projects in the crypto field are in their early stage, including the development of the technology at their core. The price of crypto today is mostly derived from the investor’s belief in its future value. Without a tangible underlying asset, it is difficult to imagine the value of crypto itself.
There has been ongoing research on the fundamental value of crypto, and often past sceptics of the new digital asset class are now asking the questions and writing papers. However, it’s a difficult topic because when intangible capital changes from being a residual to becoming the predominant form of capital, there is a measurement crisis.
An interesting Token Valuation model presented by Johnny Antos considers crypto assets themselves as call options on the utility value of what they might someday provision. He argues that the “high prices” of these intangible assets today are justified by the significant time value embedded in their high volatility. Owning a crypto asset, he argues, is essentially holding a call option on the right to use or contribute to the product if the token project team successfully invents something innovative and valuable.
Blockchain and crypto is the same thing.
The reality is that in the projects that will most probably succeed (maybe less than 3%) the tokens and the product are sort of the same thing. For example, on the Ethereum platform, which hosts hundreds of dApps, users need to pay to use these applications. This is done by Ether Gas, linked to the ETH token price, and it naturally drives the ETH price up. The question of what the fundamental price of ETH that is driven by “real” token usage and not by speculation is a difficult one. The only thing we know is that the demand has a good reason to rise in the future as dApps become more accessible and user-friendly.
So in a sense, I believe we are still far from seeing the real potential of crypto, not only the underlying technology.
We briefly discussed why crypto could be a good investment and now the next question :
“Is now the right time ?”
Here are a few observations, it’s up to you to decide:
Market levels are close to where they were around this time last year, but blockchain awareness and development is much further ahead
Just look at Ethereum, not so much at the transaction volume or number of active users but rather at the slow but steady growth of dApps usage. Martin Köppelmann, the founder of the Ethereum-based prediction market platform Gnosis, said that despite the decline in the price of ETH, the Ethereum network is snowballing. More importantly, he noted that the interconnectedness of dApps is improving for the entire decentralised ecosystem, and the ETH price will follow accordingly.
Do you remember the BAT platform, the ICO-funded BRAVE web browser that seeks to use the cryptocurrency token to upend the web’s traditional advertising model? They have more than 3 million active monthly users from 2 million just a few months ago. They recently announced that they entered beta testing in preparation for its eventual full-scale rollout. We support its adoption by using the browser in our company, and we encourage you to do the same, it’s excellent!
Growing investment interest in crypto from institutional investors waiting for the green light from regulators
Apart from hundreds of already existing crypto hedge funds the institutional players are cautiously entering the game and when that is done a crypto price surge is to be expected.
Goldman Sachs, Citigroup, and Morgan Stanley, three of the largest investment banks in the US, have already developed a wide range of products including a trusted custodian solution to serve institutional investors in the cryptocurrency market. This will improve the liquidity and infrastructure of the global crypto market. However, we need to wait until local regulations make way for their crypto products to hit the market.
Other banks around the world offer crypto as an investment to their clients such as Falcon Private Bank in Switzerland, Bank Frick in Liechtenstein, the two major Russian banks Sberbank and Alpha-Bank.
Fidelity, which is one of the largest asset managers in the world with more than 2,5 trillion USD assets under management, will handle custody for cryptocurrencies such as Bitcoin and will execute trades on multiple exchanges for investors such as hedge funds and family offices.
Infrastructure is ready for the next wave of dApps
There is a narrative in the crypto space that first we need to build great tools, and once we have the means, then we can build apps. Historically this hasn’t been true at all — almost always in the app-infrastructure cycle, the first few apps come, and then those first apps inspire us to build the tools.
We are at that moment of the cycle when the infrastructure is ready for the next wave of dApps. Tokens/ICOs (2017) and early dApps (Rouleth and vDice in 2016, CryptoKitties in 2017), inspired new infrastructure: Infura (2016) and Web3js and Zeppelin (2017), ERC721, 0x, Sidechains, etc. We’re now waiting for the next big apps with great UX/UI that will drive market prices up.
Conclusion
It appears that the prevailing public opinion is that crypto is bad, volatile and risky but blockchain technology is excellent. I strongly argue this common misconception because in most great projects, the blockchain technology in their core and the corresponding crypto is the same thing.
It seems that big corporations are investing heavily in blockchain projects, but it doesn’t drive crypto prices up. That may be true for now, but the line between private blockchain solutions and public blockchain is becoming more blurred.
I am anticipating the new wave of dApps, and institutional investors in the crypto market as infrastructure and regulatory environment are improving every day in countries such as Singapore, France, Netherlands, Malta, Switzerland, Estonia, Japan, USA and many others are catching up fast.
Please don’t forget that crypto is, by all means, a risky investment and people shouldn’t allocate much of their savings (max 3–4%). It is a bet on the potential of the decentralised future.
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