THE MARKET CONTRADICTION
It has been one of the very few calendar quarter in recent years to result in a crypto global market cap drop. Simple yet important acknowledgment. Q4 2016 was the last one before, in a less dramatic measure (Note that we also have seen similar or worse quarters in the early years of Bitcoin).
While no one can explain for sure the details of how and why we can at least provide a few facts that are making the statement above less of a surprise.
First, the quarter right before, Q4 2017, was a major blow out in the investment world. You can probably see all kind of insane performances during that time frame. A lasting consolidation period afterward is almost common sense. In addition, the public recognition of the crypto space in Q4 logically lead to a global wake-up time: governments and regulators getting out of their way to catch up with the space, unintentionally bringing fears and uncertainty for many*.
Second, those *many are mostly people who invested in crypto sometime in 2017, or most of the times, in the second half of 2017. Unfortunately, “gambled” is the better word for it, as they threw money in without knowing the idea/high-level concepts behind their particular investment. Thinking they could become rich quickly, they also lost it big quickly - yes, they are the same ones who sold recently for the most part.
We always say the key is to invest only money you can afford to lose. While it remains true, the more important success key, in my opinion, is to invest in a project you really believe in. The belief is the only thing that will let you patiently wait during tough periods like Q1 2018. Long-term strategy is the biggest winner, and for long-term to be realistically enabled, you need the belief, period. That’s also the beauty: big winners deserve it, in the end. As it was never a gamble, it always was… a vision, and still is. That’s as good of a skill than any other obvious one.
Finally, keep in mind, we have seen periods of time when prices increased significantly with no real progress to back it up. The same way today, I’d say we are seeing prices go down significantly with actual progress to contradict it. This is the market contradiction, and something to always remember: the crypto market, for now, is irrational in the short term. It tends to be more rational in the long term. As for the question, which one comes after the other? My answer: does it really matter? If you want to think, think long term. Otherwise, go on and gamble again. Ultimately, progress will be the driving factor.
THE CHANGING TOKEN SALES
Q1 2018 is also the quarter that has seen the ICO scene change dramatically. In fact, many token sales don’t use the term ICO anymore. Token sale is more generally used: ICOs have become the main target of SEC.
There is also a proposition of DAICO from Vitalik Buterin, a combination of DAO and ICO, meaning it incorporates a decentralized governance model right from the go, with the intention to manage the proceeds with greater efficiency/fairness (progressive release of budget based on milestones and a possibility of refunds). Abyss is one first example of it. You can find more on this topic in many places.
More importantly, serious teams with high profile networks more frequently deal with private sales than ICOs. Because this process is much more streamlined, having a KYC and solid documentation on each investor right from the go make things easier from a regulation point of view. This has many implications, including the fact that most individual investors, not being accredited investors, are not able to participate anymore. This is sad in a way because it was one of the beauties of this space: everyone investing equally, with the same level of opportunity online. I hope this is just a temporary step backward while regulation is further figured out. Also, I am confident that the opportunities remain fairly wide open as many more accessible funds and platforms are becoming more efficient. We are seeing the formalization of investment pools, investment tools with automated KYC, security tokens and many other processes.
Polymath, for example, is still very young but has real potential to impact the crypto space by letting the regulation framework integrate into it. Polymath is essentially a security framework in the crypto space, from which investors and fundraisers will be able to evolve in a much more mature way. The bet of polymath is that it will bring the existing wall street securities into its platform, via the specific services they are building. I also envision that many current securities today will in fact become security tokens a couple of years from now, and if Polymath is facilitating the way for it, I intend to support it.
As another example of formalization in progress, Academy covers an essential part of the ecosystem problem, education. The ambition is to provide global tuitions of the promising frameworks of the space, in partnership with universities, and utilize their token in all the related services.
THE INFRASTRUCTURE FIRST
I believe we are still in an early foundational phase of the future we all imagine with crypto. This means that infrastructure needs to be built and improved first, before the applications, or dapps, can become effective for the mainstream. While many applications are already being developed, we are seeing a pickup again on the infrastructure side, with an increased awareness of how essential that is. I think the Bitcoin forks and limitations, as well as the Ethereum challenges experienced in 2017 and onwards, helped in this awareness. It’s a good thing. Now we are at a stage where we see corporates and startups collaborating on many experiments, along with the guidance of governments, lawyers, hedge funds, and most of the required actors to produce a mature outcome at the end. I remember back in the days of 2013 to 2015, hearing of one big company just mentioning blockchain or bitcoin was a big deal. In 2016, a single corporate partnership or government mention was a big deal. Let us realize and pause on the progress for a moment. Doesn’t it need a bit of breathing?
IBM with Stellar. SAP with hyperledger on Ariba. Banks with Ripple, and Ripple added to Hyperledger BC. Devices companies with IOTA. Bitcoin and Lightning Network. EEA growing. Plasma et Plasma Cash. OmiseGo and Thai government, plus plasma implementation soon. Coinbase and ERC20 tokens. G20 positive environment toward crypto. SEC & CFTC regulating crypto. More and better decentralized exchanges. Modum and SAP, plus 43 pharmaceutical corporates. Robinhood listing crypto. NEO & Qtum tokens spreading. Skycoin innovations. Tau agoras research and implementation progress. Many other events are just as big or bigger, this is far from an exhaustive list.
Those are all the great things going on that will make tomorrow a better day. Believe, or bet not.
SOME READING
Challenges of stable coins, bubble demystified, problem of combining store of value and utility tokens - by Skycoin, Education (students want to be “the disrupters, not the disruptees”), Meta language research by - by Tau Agoras, data storage Filecoin blog. I also share those links and more on my twitter, and smaller posts on my archives.
IMPORTANT DISCLAIMER
Nothing in this post is intended to be a financial advice. As always, you should do your own research before investing in anything. The financial risk of investing in this market remains significantly high.