As part of our “feet on the street” approach to research, we talked to a lot of Crypto ecosystem stakeholders in recent weeks – from Crypto startups to investors, from Blockchain lawyers to big tech Crypto experts. The two common questions emerged again and again: When will the Crypto Winter end? What factors would prompt the turnaround?
Crypto insiders see four potential catalysts that could change the current dynamic:
More clarity from regulators in 2019 will embolden the market. Many of the regulatory questions from 2017 and 2018 have yet to be fully resolved, but things are moving in the right direction. Despite limited guidance from the Securities and Exchange Commission (SEC) and inaction by Congress, the regulatory rhetoric about Blockchain and tokens has become more constructive. The SEC website recently launched a page devoted to Initial Coin Offerings, giving that funding method more legitimacy. The SEC’s FinHub website also reflects this more accommodating approach in adjacent, innovative financial technologies, such as digital marketplace financing and artificial intelligence. Many overseas jurisdictions have followed suit. For example, Costa Rica decreed that all Blockchain tokens are commodities. Regulators in Thailand now have a stronger mandate to regulate the market. Industry officials see the SEC’s efforts to safeguard investors from fraud as positive: clear regulation, even though enforcement, is far better than none at all. We believe regulators who are engaged with the industry and are thus better educated about crypto technology will help unlock demand from institutional investors, both from buy and sell sides.
Token offerings are forging ahead. Over the past few months, several Blockchain startups have been diligently working on their projects despite the volatility in the broader ecosystem. Some companies raised significant capital last year, and thus see an open road through end of 2019. For example, Valut12 launched a coin offering earlier this year to address custody and security issues facing crypto investors. CEO Max Skibinsky sees Valut12 as the “Bank of Yourself.” The company is currently Beta testing its app and is planning a wider release in 2019. Origin Protocol also executed a successful token offering and will help to launch 40 sharing economy marketplaces next year.
We will also closely monitor 0x, OmiseGo and Zilliqa. At the ETHSF Hackathon, 0x showcased its ability to facilitate the exchange of synthetic assets or token bundles that mimic real world assets, such as the S&P 500. OmiseGo hopes to launch a non-custodial, fully decentralized exchange based on its OMG token during the first half of next year. Despite some delays, Zilliqa intends to launch its Mainnet sharding technology in January 2019 designed to boost Blockchain computations and scale crypto marketplaces.
Smart money and institutional capital is piling up. Venture capitalists are still investing in Blockchain, notwithstanding the estimated 70 percent drop in cryptocurrency market caps. The decline will weed out the economically infeasible tokens from 2017 and focus investors’ attention on higher quality tokens. Institutional investors, the so-called “smart money,” are taking more time to understand the economics of Blockchain projects. According to Icodata.io, investors have poured over $7 billion into 1,139 STOs, compared to $6.2 billion in 2017 on 875 ICOs. The amount of committed capital for the month of October is approaching $675 million.
Pace of crypto innovation continues. Over the past several weeks, we have identified a long list of Blockchain startups tackling real-world problems with innovative solutions. The plunge in cryptocurrency pricing has not deterred entrepreneurs and startups. Here’s a list of interesting projects we’re watching:
- Oasis Labs: This firm wants to merge cloud-based computing with Blockchain on the Oasis platform.
- Arbitrum: Through a combination of protocol design, incentives and virtual machines, Arbitrum wants to bring “Scale-as-a-service” to market.
- Dirt Protocol: This project seeks to streamline the adoption of Token Curated Registries (TCR) by acting as a “TCR factory,” as Founder Yin Wu put it. TCRs address problems in creating and maintaining data sets viz. the alignment of incentives.
- Chainlink: As a developer of Blockchain middleware, Chainlink is developing solutions to improve the scalability of Blockchain technologies.
- Plasma Cash: This project aims is developing a scaling solution for a subset of Ethereum-based apps with non-fungible tokens (e.g. Cryptokitties)
Many of these projects address problems encountered in Blockchain implementation (e.g. scalability problems, token economics). They represent new ways of overcoming pre-existing, prior-to-Blockchain challenges. Investors are funding good projects, though VCs have been trying to talk down project valuations.
Bottom line: The foundation for a meaningful crypto comeback appears to be in place, despite the current environment.
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