“Economists and journalists often get caught up in this question: Why does Bitcoin have value? And the answer is very easy. Because it is useful and scarce.”
– Erik Voorhees, Cryptocurrency Entrepreneur
We stand at a turning point in history.
Financial markets have begun to take notice of cryptocurrencies, both as alternative commodities and as a real investment options. Some market experts (can you find one to quote?) have said that we are approaching a point where nothing will be able to outperform digital currencies. Bitcoin flirting with the $20,000 barrier just a few weeks ago was like waving a red cape in front of a bull. Interest in Bitcoin and the crypto space in general has seen a huge surge of interest.
While most cryptocurrencies are being used as stores of value with traders looking to make their fortune on exchanges or just holding on for dear life (hodl), there are deeper implications for the global economy.
These issues were on the agenda of a panel at the Blockchain Expo North American, which was held at the Santa Clara Convention Center, and had over 10,000 delegates in attendance, a new record for the event. There was robust discussion by the assembled industry experts about how cryptocurrencies are impacting traditional capitalism, and the potential benefits these digital commodities could bring as they are more widely adopted.
The moderator was Sydney Armani, CEO of Fintech World and the panelists were:
- Michael Terpin – (BitAngels Co-Founder, PR to 60 ICOs, and sub-advisor to Alphabet fund)
- Rodolfo Gonzalez – Partner at Foundation Capital
- Ami Ben David – SPICE Venture Capital
- Marcello Monaco – Chief Operating Officer at W3Coin
The Rise of Cryptocurrencies
“Right now, I don’t like equity – I like investing in tokens. Just for the economics of it…”
– Michael Terpin
BitAngel’s Terpin believes that no other investment will outperform tokens. $10,000 was a magic number for Bitcoin, he claimed, and all bets are off now that we have passed this level.
Monaco pointed out that crypto markets started 2017 with a market cap of around $80 billion and closed out the year having more than quadrupled to around $330 billion. While a large percentage of this growth can be attributed to Bitcoin’s amazing run, Ethereum and Ripple hold sizable portions of the market cap themselves.
Of course, not all cryptocurrencies are created equal. Infrastructure tokens have been excellent performers so far. One such example is Dash, an alt-coin that went from $2 to $700. The return on investment was staggering, but will this inhibit people using the coin for transactions and hold it instead?
Investing in crypto avoids the baggage surrounding equity investments, where the board seats, and ultimately, control of the company, are exchanged for liquidity. Instead, token-based currencies are able to function autonomously, without middlemen or central authorities. This is the future of our world, Manaco stated.
Investors should be wary though, as the volatile crypto market is high risk for high reward. The popularity of this model is undeniable, but if investment gurus like JP Morgan and Warren Buffet are expressing reservations, then potential investors should perhaps to take heed.
According to coinmarketcap.com, Bitcoin holds around 35% of the market cap, Ripple 14% and Etherium 13% of the 650B dollar market. With all of these
Could this be the future of our world, or are we just witnessing the paroxysms of a bursting bubble?
Are We In A Bubble?
“No no, we are not in a bubble. We are just in the beginning.”
– Marcello Monaco, COO of W3Coin
When asked if we are indeed in a crypto-bubble, Monaco replied, “…no…we are in the beginning.” He describes the impending adoption and implementation of digital currencies as “life changing”, and as a “reality”.
Despite some market analysts predicting exponential growth within the cryptocurrency arena, traditionalists from venture capitalist are not buying it, not yet. That kind of cautious approach is wise, given the volatility of the market is currently experiencing.
However, during the panel talk at the North American leg of the Blockchain Expo, Rondolez Gonzales pointed out that VC firms are finding themselves falling behind the curve, as individuals have been diving into the markets with very little appreciation for the risk of their actions.
Part of this reasoning, according to Michael Terpin, is that it has become structurally difficult for VCs to invest into the equity side of a company, largely due to LP agreements that are in place, which prevent VCs from holding coins. This is largely due to the fact that the value of these crypto currency coins are far greater than the equity value of the parent company, or too unstable to value accurately.
Companies that do venture into the ICO space and come away with tokens will often find themselves in the position of not quite knowing what the next step is. Should they sell these tokens for a profit, and potentially lose out on further earnings?
Or do they hold onto them and hope that the market continues to grow in this volatile landscape. The ICO trend is threatening to cut VC’s out of the money-raising process by allowing early stage companies to solicit investors directly.
The confusion that we are seeing here is driven largely by the leaps and bounds that the technology has brought with it. It is disruption of markets that we are seeing in real time, right before our eyes. This is very similar to the tired old cliché of how the taxi industry reacted to Uber when it first appeared on the scene, and is likely to have much more far reaching consequences.
“A lot of VC’s reacted to ICO’s like taxi drivers reacted to Uber. They’re being disrupted. VC industry is managing $524B vs just $3B for ICOs.”
–Ami Ben David
This ultimately leaves VCs with two options, according to Michael Terpin: adapt, or die. Showing an unwillingness, or an inability to understand this global shift will spell disaster for defiant entities.
Utility tokens appear to be holding their value, and are seen as being a stable investment going forward. This is because the SEC was able to strengthen the vetting process for new coins trying to come to market, halting the influx of new coins from three to four per week, right down to virtually zero.
Advice for Start-ups?
Michael Terpin summarized it best, saying “…to startups planning an ICO: Don’t make crap coins. This is the opportunity of a lifetime.”
With such a vast untapped market ahead of us, let’s hope that startups create value, and heed the call, creating innovative coins with utility and value.