Bitcoin has been on a nose dive since early 2018. But the market sentiment cannot affect crypto’s potential to change the world.
The crypto economy has tanked to about $200 billion from its peak of about $800 billion in late 2017. So, is the party over?
No, far from it. Crypto will come back stronger.
The party is certainly over for the scam ICOs (initial coin offerings) who rushed to cash in on the irrational exuberance of 2017, when few were prepared for theopportunity. While the serious people got down to putting the rails together, the opportunists got down to fundraising in a frenzied manner. Of course, there were some serious players who were early to the game, and the time was right for them for fundraising in 2017.
But for many crypto novices, it was not the case, and it was a lucky windfall. Many have raised hundreds of millions of dollars on the promise of crypto-fuelled innovation, and will struggle to deliver the promise. But I insist that apart from Bitcoin, Ethereum, and a few handful of ICOs, there have been few inventors in all of the crypto Big Bang. The rest are opportunists. Inventors don’t spring up miraculously in a bubble. Those who do breed in the bubbles are surfers of the wave. Some of them may create value eventually, but most don’t.
What exactly is wrong with the crypto market right now? The lead crypto currency Bitcoin, or BTC, which is strongly correlated in price to all other crypto currencies, has been on a nose dive since early 2018. The retail crypto investors are feeling poor right now. The fall is also on account of a sustained assault onBTC from institutional players and everyone whose sovereign right to print money stands threatened by BTC.
Ironically, the very success of Ethereum has put a downward pressure on its price. More than 90 per cent of the approximate 1,000 ICOs that were launched in 2017 were on Ethereum. They had to later sell ether to meet their cash flow and funding needs. The more ether there is to dump in the market, by players like EOS (an Ethereum competitor), the more the ether price tanks.
Despite volatility, the potential of crypto is not lost on anyone, most of all the big institutional players. The churn we so often see in every other industry, especially the high-tech industries, is an unknown phenomenon in banking. The last known invention in the banking world was the ATM, and the plastic card –until Bitcoin came along. All other innovations were incremental, not a leap for humanity. Crypto is that leap. The trend is irreversible.
While the financial institutions are attacking crypto as a fad or fraud in a concerted fashion, they are simultaneously taking defensive actions to strengthen their moats against fledgling attackers. The attack surface has widened with crypto, and the entry barriers are now low and we are lowering it further.
That is the ultimate promise of Satoshi, the bitcoin inventor. Bitcoin or crypto is not just about robust alternatives, be it a currency or a financial system. It is about changing the established systems of power, opportunity and new wealth creation.
Unlike the retail crypto investor who predominantly funded 2017’s ICO frenzy, a large chunk of 2018’s ICO funding of over $10 billion has come from institutional players, traditional venture capital funds and so on. There are now over 350 dedicated crypto funds with assets under management worth $10-$15 billion.
As the infrastructure and the ecosystem are getting built, more products such as futures, derivatives are now available to sophisticated market manipulators. The fact is there are only 21 million Bitcoins that will ever be in circulation. Bitcoin has established itself as the most robust, fail-proof, default alternative to any sovereign fiat currency in the world. There are more millionaires in the world than there are Bitcoins to be owned. So it is anti-inflationary.
Even gold and diamonds do not have a strict ceiling on supply as new mines can always be discovered. More US dollar bills can be printed at will. But, not so with Bitcoin. So the long-term trend for Bitcoin and crypto is upward and upward, no matter the swings that occur in the short-term. Manipulators are trying to frighten ignorant novices to panic sell so that more can be acquired cheap.
Crypto’s tensile strength is being tested right now. Bitcoin has already proved its resilience and will spring back stronger. Why? Because it was designed to be “anti-fragile” as author-scholar Naseem Nicholas Taleb would say. Bitcoin was born right in the middle of a financial war between the big financial institutions and the common man. Now when the next financial crisis hits the world, crypto will be a safe bet solution and a hedge to that crisis, not a catalyst of the crisis.
The inventions are not going to stop with Bitcoin, Ethereum and the blockchain application HCX. We have to brace ourselves for the mass upgrade. There will certainly be Apples and Googles of the crypto economy.
Your crypto profits may be evaporating at the moment, if you are a speculator trading short-term. But crypto will never go away. So look beyond crypto as an asset class to trade, and think of crypto as an inevitable tech upgrade of the entire economy. The crypto prices and market sentiment have nothing to do with the potential of crypto to change the world.
The author is a crypto pioneer, inventor and founder of HCX – a blockchain-based capital markets platform, and India partner of Ethereum.
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