Onto Greener Bubbles
Hoo boy — 2018? What a ride. Chroma had front row seats to a number of frothy investment trends: crypto, private real estate, crowdfunding, impact investing, and cannabis.
We spent the first part of the year using our token-enabled fundraising platform to serve the ICO industry. We’ve been operating in the crypto / digital assets space since 2015, but have primarily used our technology to help people invest real dollars into “real assets.” But then this happened.
As the SEC stepped in to regulate the industry, Chroma’s historically cautious approach to best practices (securities exemptions, legal contracts, KYC, escrow accounts, and USD payments) suddenly put us in a great position to advise the ICO industry, who spent the past few years living in a mirror-world where the rules of the old economy didn’t seem to apply to them.
Turns out, they do.
You know what happened next. The bottom fell out of the ICO market and coin prices plummeted as much as 90% from their all time highs. But for those of you who weren’t swimming in those tides as they came in, here’s an observation: most of the early market participants knew they were operating inside of a bubble. They just believed that they could work it in their favor
I’m old enough now to have lived through a few major financial bubbles. A truly nasty bubble tends to have convinced. the majority of the public that the current swing might just go on forever. And it’s always the less sophisticated investors piling in near the market top who suffer the most.
Here’s a handy illustration of this phenomenon.
For those of you who took a bath and want nothing more to do with crypto as an asset class, in the short-term, I think you’re probably right. It’s an irrational market and we still haven’t agreed upon what its fundamentals are. Consumer adoption still hasn’t arrived and there’s still a lot of technical / market risk surrounding the build out of layer 2 solutions that will allow blockchain networks to achieve true scale.
But if you start hearing the majority opinion suggest that blockchains were just a fad, or a technology in search of a problem — that might be a good signal for a nearing bottom. In the meantime, we’re holding faith in the movement, if not the markets. Being developers with hands-on experience building applications has taught us something important about the long term potential of the technology.
Those of us who acquired a taste for volatility, meanwhile, have moved onto greener bubbles. Like cannabis. Did you catch this wild upswing in the price of Tilray, a publicly traded Canadian cannabis company?
Of course, Tilray soon retraced this entire gain in the span of less than a week. But for many volatility junkies leaving the crypto markets, it seemed to shoot off a flare. The party’s not over — it’s just moving to cannabis stocks.
Chroma spent the majority of 2018 working with one of the cannabis industry’s largest manufacturers. So I say this with the benefit of some experience in the cannabis space: there’s a real there there. And no one has to argue about consumer demand. In cannabis, most of the priced in risk has to do with the frameworks that state and national governments impose on this newly regulated market.
We’ll have a lot more to say about this market in the months ahead. For now, a few parting thoughts.
1) As our society becomes more deeply networked, herding behavior coordinates ever faster, guided by a new set of rails. Bubbles are forming — and popping — faster than ever before.
2) The fact that everyone seems to know it’s a bubble doesn’t. do anything to change the fate of the bubble. It’s possible that as bubbles form more frequently that the implicit dynamics of them becomes a more stable reference point for a new generation of participants. But that hasn’t (yet) changed the fundamental dynamics of market manias.
3) As we head into volatile macro headwinds in 2019, it’s interesting to ask, “stocks, debt, tech, cash — what isn’t a bubble right now?”
Here’s your link of the week, an excellent write up on one of the most interesting securitizations of all time: David Bowie’s “Bowie Bonds.”
https://bowiesongs.wordpress.com/2013/08/27/the-bowie-bonds/
From the desk of Marcus Estes
Chroma HQ
220 NW 8th ave.
Portland, OR 97209
