August 15th, 2018
The crypto market is dead.
At least, that’s what you’d think if you looked at a price chart – any price chart, really – of a cryptocurrency that was around during the highs of December 2017. With the digital currency market in the doldrums, you’d think that yesteryear’s optimism was gone, that the businesses had all shuttered…. That we realized these tulips didn’t actually have any value.
And yet, the long-term prospects for the cryptocurrency industry have never looked so bright.
That’s not complete conjecture. This post will explain what’s been happening in the crypto industry as the prices of coins and tokens have been falling. Yes, money has been flowing out of the currencies, and at an alarming rate if all comparisons are made to last year’s highs. But, if you look at what has been flowing IN to the industry – super talented builders, experienced executives, and buckets of money allocated just to support them, things look pretty damn good.
Let’s start by agreeing on one simple fact: Cryptocurrencies don’t have a “killer app” yet.
There isn’t a super compelling reason for people to be using cryptocurrency yet. It’s kind of like the internet in 1986. The network of TCP/IP connections is there, information and data can be sent, but it’s not really useful for 99% of society just yet. The protocol, the underlying technology, has been developed. It’s very early, but blockchain is beginning to show relative stability and continued technological progress. It *should* be capable of supporting more than just glorified wire transfers over the 1700 or so cryptocurrencies that are out there. And yet…
We’re still waiting for the World Wide Web of this technology to be created. We’re still waiting for the email of blockchain. And I don’t mean that we actually need a blockchain web browser and blockchain-based email client – although those are being developed too. We just don’t have any compelling reasons for your average Joe to get involved with digital currencies.
Source: Longneck and Thunderfoot
And when we do have that “killer app,” the product or business or network that runs on blockchain, there’s a very good chance that the average person won’t understand digital currencies or blockchain. You don’t need to understand TCP/IP networks or content distribution networks to use Facebook. You log in, and everything “under the hood” just works.
(Many BitBuy users are currently using blockchain email platforms like Earn.com, BitBounce, and Cryptamail. The web browsers Opera and Brave are also doing interesting things with blockchain.)
The Recipe to Building the Killer App of Blockchain:
It’s hard to say who will build the killer app, the thing that takes cryptocurrencies into the mainstream. In October, we’ll be 10 years from when Satoshi first released Bitcoin’s whitepaper, and we still have no idea who Satoshi is, or exactly what his pedigree was. However, we can assume two things: Talent and money will go a long way towards building that killer app.
Talent is hard to quantify, but some people just have “it.” They have insights about how people think, how we interact with the world, or how systems can be drastically improved. These insights guide them to create a product that is drastically different from what’s currently on the market. Steve Jobs had it. Bill Gates had it. Jack Dorsey and Zuckerberg have it. Talent is real, and whoever builds the killer app of cryptocurrency will certainly have it or be able to attract it.
In a world where talented software engineers are routinely making mid-6 figures, and are courted by all the major tech organizations, money will be necessary to attract the best and brightest. Even if the smartest people want to work for themselves (as is often the case,) money cannot be overlooked – it will be crucial to rounding out the team, hiring all the critical functions to build an organization up.
I’d propose that the recipe looks something like:
Talent and money alone will not guarantee that you can build the best company, product, or network. But, they are the easiest to control for.
And if we’ve seen anything in 2018, it’s a ton of talent and money flowing into cryptocurrency. Maybe not the actual coins and tokens themselves, – we’ve all seen the declining prices – but definitely into “projects,” protocols, products, companies, and funds. In other words, the prices have been dropping, as the future potential massively increases.
Let’s take a look at funding. Seven months into 2018, and the website cryptofundresearch.com has noted “96 new crypto hedge funds and venture capital funds” that were created this year. Their research shows that there are currently 466 crypto funds in existence, and more than half of those were created in the last eighteen months.
With traditional venture capital funds like Sequoia, Pantera, Andreessen Horowitz, and Draper Associates managing an outsized portion of funds, this isn’t all dead money. These firms have survived for decades by picking and building winning teams in technology.
And while there is only an estimated $7-9 billion sitting in these funds, which pales in comparison to Bitcoin’s $108 billion market cap, these funds do not exist to prop up the cryptocurrency market. Rather, they are trying to build the teams that will fundamentally change how we deal with cryptocurrency. As stated above, when it’s executed well, we might not even be aware of it.
Investing in a team has a multiplicative effect. A small investment can spur on growth a few orders of magnitude higher. Peter Thiel invested the first $500,000 into Facebook. This investment returned over $1 billion to him, and Facebook is now worth over $500 billion. Sure, that’s cherry-picked data, and most investments fail. But, by investing in many strong teams, the best hedge funds and venture capital funds see a small handful of teams returning 100 – 1000x their initial investment – more than covering all their losses.
The same will be true in crypto, so long as there are enough talented people and strong teams to invest in. And we have all indications that there are. Here’s a look at some of the most recent executives to depart from their lucrative finance jobs to work on digital currency products.
Blocktower Capital is one of the premiere crypto hedge funds. It was founded in 2017 by Ari Paul and Matthew Goetz. Goetz was formerly in Goldman Sachs asset management division. Blocktower has since hired three vice presidents away from Goldman, in addition to other high-ranking managers.
Nelson Minier, formerly of Credit Suisse and Nick Gustafson, formerly a senior vice president at Jeffries, have both been hired by the cryptocurrency exchange.
A former head of sales (Christine Sandler) and head of finance (Eric Scro) from the New York Stock Exchange have both packed their bags to join Coinbase. Coinbase also picked up Jeff Horowitz, who served as global head of compliance for Pershing LLC (a subsidiary of Bank of New York Mellon Corp) and oversaw their $1.8 trillion in assets.
The Winklevoss’ Gemini Trust Co. also snagged a top NYSE executive. The NYSE’s chief information officer will become the first CIO for Gemini.
A former Visa CEO, Marc O’Brien, who served as the CEO of VISA UK for six years from 2008 to 2014, has moved to become the CEO of Crypterium, a crypto payments company.
As reported by BTCmanager: “Asim Ahmad, a former trader at BlackRock, resigned from the company after generating enough capital from his investment in ether, the native cryptocurrency of the Ethereum blockchain network.”
“I’m in a position where it doesn’t make sense to work at BlackRock anymore. The one-day volatility of my portfolio is higher than my salary, so if I get a few investments right then I’ll have made the same as my yearly wage and everything else on top is a bonus.”
With substantial amounts of money being dumped into funding new teams and products, and some of the top talent from well-known brands leaving for crypto, optimism is high. Add on to this, the current state of regulation, and that we may soon see Bitcoin or crypto ETFs pump the entire market. The markets may be currently in decline, but the real trend to watch is an exodus of talent and money pouring into cryptocurrency, competing to build the killer app.