Will Crypto Ever Rule the World?
What NYC Blockchain Week revealed on the state of crypto: then, now, and what's next.
To kick off New York City Blockchain Week last May, some of the most influential Blockchain funds in the space globally, with over $9 billion in assets under management (AUM), came together at the Blockchain Fund Summit in Manhattan, organized by Lightnode Media. Their purpose was to educate family offices and traditional investors on various investment strategies and opportunities. Not surprisingly there was a united belief among presenters in the value that has been created in the blockchain economy and an optimistic view of its huge expansion in the future.
In the short term, you could say they were correct as the price of Bitcoin bounced back. However, throughout the week, there were differing views and attitudes on the effects of the previous hype, the reality of the market today, and the future outlook.
Blockchain Fund Summit - NYC Blockchain Week - Light Node MediaAbout : The New York Blockchain Fund Summit will be focused on educating family offices and traditional investors on various investment strategies and opportunities…
Was the crypto craze good or bad for the industry?
In December 2017, the price of Bitcoin spiked to over $20,000, which was followed by a lot of hype which had both negative and positive effects that have significantly shaped the industry as we know it.
The most obvious example of the hype is the dozens of companies that simply added "bitcoin" and "blockchain" to their name and saw significant increases in stock price. There are also many examples that folks would soon like to forget, such as the number of exit scams and so-called "shitcoins".
This negatively affected the industry because it generated interest by speculative investors before blockchain technology was ready for use or widely adopted. In creating lots of noise, budding entrepreneurs were deterred according to Jalak Jobanputra, founder of FuturePerfect Ventures. In the public eye, the focus of the industry was dominated by folks looking for short term gains rather than patient capital for use cases beyond a store of value.
However, on the positive side, it brought widespread awareness across all age groups. A survey by Blockchain Capital finds nine in 10 Americans are aware of bitcoin. Additionally, blockchain technology and cryptocurrencies are taken seriously as viable mechanisms in the marketplace. Now that the hype is over and only true believers remain, the builders are hard at work developing the infrastructure for the nascent industry.
What is really going on with investing and adoption?
The latter half of 2018 yielded a bear market that lasted a while, with the price of Bitcoin staying relatively consistent. This bear market hit institutional investors hard. According to a report by PwC, crypto hedge funds suffered a median -46% loss last year. However, 36% of funds surveyed use or can use leverage and 74% can take short positions. This explains why these funds performed better (or less bad) than Bitcoin itself (down -72%).
Arbitrage strategies are also effective, according to Joe Dipasquale, CEO of Bitbull Capital, a fund that was actually up 29% last year: "My own preference is to play off of crypto's unique volatility, so our own Opportunistic Fund engages in "market-neutral" strategies like arbitrage and market-making. These strategies profit off of volatility while being uncorrelated with the direction of crypto.
Now, bitcoin was the first and most well-known cryptocurrency, but it isn't the only player in the industry. In the first five months of 2019, over 250 token offerings have collected a total of 3.3 billion according to PwC's the 5th ICO / STO Report.
Yes, there is money to be made in buying and selling cryptocurrencies as well as investing in digital securities, but it begs the question: are people actually using cryptocurrencies to make transactions?
True story: during a dinner toward the end of NYC Blockchain Week, Bitcoin maximalists used Venmo to pay the person that covered the meal rather than transacting Bitcoin from their mobile wallets. If they believe Bitcoin is the dominant coin and will be ever-increasing in value, I can see why they would want to hold on to it rather then buy more. On top of that, all crypto sells, conversions, payments, donations, and earned income are reportable by US taxpayers. Paying a friend back for dinner isn't exactly worth increasing your taxes.
So if peer-to-peer payments haven't exactly caught on, what about paying for goods or services? Well, probably not-so-coincidentally the Flexa app was unveiled during NYC Blockchain Week, which allows consumers to spend crypto at fifteen major US retailers. This is great news as far as acceptance goes, but personally, I like the loyalty points I get from using my credit card for purchases.
Crypto is here to stay, but where will the best opportunities emerge?
It is extremely hard to predict the directional changes of crypto prices, but the blockchain economy is so much more than that. Fidelity conducted a crypto survey from over 400 institutions which revealed 47% of institutions believe digital assets have a place in their investment portfolios.
Furthermore, corporate investment in blockchain signals acquisition potential down the road and the legal teams in large companies thinking about issues could be allies in the regulatory battle. A report from Oktareveals that 61% of the world's largest businesses are investing in blockchain as part of their digital transformation strategies.
Okta's The Digital Enterprise Report: How the World's Largest Companies are Evolving with Technology
Some examples of corporate investment in blockchain platforms, companies, and assets, to name a few, include:
- IBM Blockchain, enabling organizations to bring together allies across departments and disciplines, industries and organizations, and countries and cultures.
- PayPal investing in Cambridge Blockchain, a startup that helps financial institutions and other companies manage sensitive data using shared ledgers.
- Facebook announces Libra cryptocurrency, which will let you buy things or send money to people with nearly zero fees
Although these established organizations are beginning to understand and harness this emerging technology, the biggest outcomes will likely come from new markets and independent players.
The discussions during NYC Blockchain Week invariably turned to security, chiefly because, Binance, the worlds largest cryptocurrency exchange announced — very transparently — that it had been attacked and lost over $40M. Seemingly hackers were able to compromise several high-net-worth accounts, whose crypto was kept in Binance's hot wallets. What was not widely reported at the time, but confirmed by other exchange operators, was that hackers attempted penetrations of multiple exchanges at the same time.
The impact here in on the value and confidence in the crypto economy — 21% of all Bitcoin is inaccessible — that's $20 billion. In the last two years, almost $3B has been stolen and in fact, the first 3 months of 2019, over $356M has been stolen from cryptocurrency exchanges according to a recent report from blockchain intelligence company Ciphertrace.
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