The lofty promises of instant riches through crypto have fallen short, but the market will be better as it works through an evolutionary stage.
This article was originally posted on CFO.com
Last year was a painful one for cryptocurrencies and blockchain. After crypto prices hit all time highs a year ago, the market cap for all cryptocurrencies dropped more than $500 billion by the end of 2018, with many altcoins suffering as bad or worse as bitcoin.
There’s no shortage of claims that the death of crypto is at hand. But is it?
I’ve been investing in and advising blockchain and crypto groups for more than three years and I have always told friends and colleagues to assume that 80% to 90% of blockchain companies will fail, 10% to 20% will survive, and 0 to 5% will become the next FAANG (Facebook, Apple, Amazon, Netflix and Google) trade. It goes without saying that crypto and blockchain markets are not for the faint of heart.
For every project that delivers a functioning token ecosystem and blockchain, there are a multitude that don’t get it done. For example, Sirin Labs recently revealed that it is struggling to deliver a blockchain smartphone after raising more than $150 million. Other companies, like ConsenSys (a leader in developing the ethereum ecosytem), are refocusing and cutting their workforces.
Worse, an increasing number of crypto-related businesses are turning out to be frauds. Like many, I’ve made some good decisions and I’ve been burned by some of the scammers and mismanagers. Even companies that are delivering the goods have seen their token prices go down. The real companies are struggling to ensure the baby doesn’t get thrown out with the bath water.
Tailwinds
Sounds pretty bleak, right? But it isn’t.
Blockchain is an increasing part of the strategic plans of corporations and governments around the world, not just the province of startups. The crypto world is already benefiting from the interest of established entities, and this trend looks to continue.
In addition, for core cryptocurrencies such as bitcoin and ether, network activity continues to increase significantly. The number of developers and miners on major chains also continues to increase in spite of the price drops. Security token offerings (STOs) are slowly starting to allow companies to raise capital again directly, while allowing investors the benefits of liquidity and transparency that blockchain can offer if done right. If trust in crypto fundraisings is to be solidified, STOs may be a key to achieving that.
Alongside this, the SEC and DOJ have stepped up enforcement, with regulatory bodies around the world being called upon to do the same. This is a very positive development — while it may spook the markets, greater enforcement will bring into line those that have played fast and easy with regulations. We hope to see severe penalties for the outright scammers who have started to give crypto and blockchain a bad name.
The broader blockchain world also moved ahead nonstop in 2018. In November, Amazon announced it will offer blockchain services on its cloud. Alibaba and IBM, meanwhile, are in a race for the largest portfolio of blockchain patents in the world.
In the institutional investment markets, Bakkt is the new hope for bringing institutions fully into the crypto world, while several groups have had success in getting licenses to provide institutional-grade custodian solutions.The floodgates certainly did not open in 2018 for institutional crypto trading and 2019 is likely to prove a slow roll, but the key stumbling blocks to widespread adoption of crypto as an asset class are being addressed step by step.
Finally, last year was also a strong one on the government and multinational sides of the blockchain world. For example, West Virginia piloted blockchain voting in the United States in March, while in August the World Bank issued a $110 million Australian bond on the blockchain. While we may not be paying our taxes in the United States in bitcoin in 2019, governmental bodies are certainly warming to the technology.
2019 and Beyond
So, where do we go from here? My view is that 2019 will be an evolutionary, not revolutionary year for crypto and blockchain. The lofty promises of instant riches through crypto have fallen short, and the market will be better as it works through this stage.
We can expect positive growth. Blockchain and crypto companies and projects that deliver functioning minimum viable products and real clients will be rewarded, and those that offer false promises will struggle.
Blockchain is different from other technology revolutions in many ways, but certain fundamentals are the same as in any other sector. You still have to deliver on your technology and commercial roadmaps, or, as a good friend of mine puts it, you become a science project: something that is a curiosity to observe and play with, but not really useful.
We can expect a 2019 where scrappy blockchain CEOs and leaders race ahead of their less-skilled competitors, and larger companies increasingly adopt, either by necessity or through a clearer understanding of the future, all that blockchain has to offer. Two-thousand eighteen may be at an end, but the blockchain revolution is only just emerging from its infancy.