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Dovey Wan is a founding member of Primitive Ventures, a global investment holding company with a focus on cryptographic assets and blockchain assets. You can follow it on Twitter at the address @doveywan.
The following is an exclusive contribution for the 2018 year of CoinDesk under consideration.
While emerging assets are always turbulent, 2018 has been a particularly violent year for the crypto markets.
Many investors who entered during the 2017 bull market were severely burned during the prolonged collapse of this year because they were deluded into believing that market prices accurately reflected the underlying value. However, this should not be understood in the sense that the crypt as an industry is hurting.
There are, in fact, two aspects in the blockchain industry: the investment side and the development side.
Unlike the traditional financial market where we usually tend to have a clear forecast and a consensus on the valuation models that can align the two, in encryption we experienced a significant disconnection between investors and developers due to the distorting effect of advertising on prices market and information asymmetry with respect to real development.
So while the bloodshed in the markets we have seen in 2018 is expected to continue in 2019, cryptocurrencies are actually making significant progress on the technological development front. Next year it will be painful to force us out of the bubble, learn the lesson and make a reality check.
However, healthy consolidation and fundamental development will lead to final prosperity.
We have not seen another crazy gold rush on the Internet after dot.com bubble, but in the end the Internet ate the world
In the market
Over the past two months, I have had many hours of conversations with key players in all sectors of the industry, including exchanges, traders, miners, founders, primary market investors and regulators.
My conclusions follow as to why 2019 will be the year when our violent delights will reach their violent ends.
Too many projects have raised too much money, often with exaggerated estimates of hundreds of millions. Even zcash, a relatively mature project that is experiencing significant growth, is now trading at around 300 million market capitalization ($ 1.2 billion fully diluted). Yet, there have been projects with less than six months of development that have generated an evaluation equal to that of zcash.
An adequate valuation model is lacking, investments are largely "FOMOmental" rather than fundamental.
Moreover, many of these high profile projects are ready to launch their main networks in 2019 and most fail to meet expectations. The overwhelming adoption they will face will be a further signal to the market that "true adoption investors" were waiting will not arrive in time to save them.
The organic community is tiny, developers are disappointed with the infrastructure and tools and many investors will cut their losses and sell when they no longer believe "only the sky is the limit".
Our failure to manage expectations well will set alternative cryptocurrencies for a major correction, as the market is also highly correlated with the price of BTC. Hashrate and difficulty are a final indicator of the price and in return will affect the offer – for the first time since 2011, the hashrate of bitcoin mining has declined significantly with the massive downsizing of miners.
Many miners have completely dismantled their mining activities, because prices have decreased so much that the bitcoin is not worth even the marginal cost to extract it. Much of what brought us into this situation is the
"Hash rate bubble" in 2017, during which many miners overexpressed their mining activities under the mistaken hypothesis that the price of bitcoin would certainly rise in the short term.
Miners who used to keep their coins may be forced to sell, sending the price of spiral coins lower. A lesser-known factor that will influence prices in the coming quarters is the fact that many funds that have popped up in Asia since the end of 2017 at the start of 2018 are on a one-year cycle (6 + 6 months). This means that they will reach the end of their mandate and will have to liquidate.
Many Western funds are expiring monthly, but they also have the redemption of panic by the LPs.
On the development
When I told my friends that Eric Melzter and I were abandoning our high-budget positions to get into business with Primitive Ventures, many asked us, "Why now in such a brutal market?" Our answer is that it is actually a fantastic time to start a fund.
Although temporary market trends can be brutal, this same condition creates opportunities for extraordinary returns for anyone who can invest in a truly valuable job while it is still highly undervalued by a frightened market. It could be the worst of times for the markets, but it's the best of times for real development.
During the bull race of 2017 and at the start of 2018, there was too much noise in the crypted space. The projects have raised tens of millions even before what would normally be a series A, and have become slow, distracted and demotivated. In addition, the quality teams were also forced to compete in the game of chip prices and had to divert a considerable amount of time and money to keep the price of the tokens and the satiated investors high.
In this current cold climate, those who remain are really busy and no longer feel the pressure to emit unnecessary tokens that will only cause friction. It is more possible for a blockchain product to get an organic adoption now that investors will not confuse popularity with real use.
We are starting to see fairer distribution models with real technological support, such as Grin and Raven, which have attracted a dedicated community even without offering an opportunity to invest in a pre-sale or pre-mine. We are also looking at the products of academic research implemented in real contexts, such as the integration of bulletproof in Monero, the update of Sapling for zcash and the implementation of Bitcoin_NG in Aeternity as part of their recent Roma launch. .
We have seen the emphasis on returning to the real usability of developers instead of chasing after the vanity metrics such as transactions per second and the discovery of the native use case rather than endless discussions on chain governance.
The non-technical development of the crypto industry is not in hibernation at all during this winter. We have seen many activities between various jurisdictions hoping to become the "capital crypt" of the world and attract talents, capitals and businesses that will bring them into an industry that could soon be worth trillions.
The dominance of Silicon Valley in previous technologies will not necessarily be transferred to cryptography because its crypto-ecosystem is not complete. Miners who are a crucial component of the ecosystem are certainly not found in California, with its high electricity and operating expenses, and traders are also largely outside the US due to high taxes and rigid regulations.
The distributed nature of crypts has appropriately allowed the global distribution of the opportunities it creates.
What does this mean for 2019 and beyond? Crypto is able to radically change the way we carry out transactions, privacy, property and many other things we can not predict. In the short term, market conditions will be brutal, but this is actually helping to cultivate real value that is simply not yet reflected in prices.
Investors and builders alike must not be blinded, exchanging short-term market movements with real value. Now is not the time to pause cryptography, but rather to take a closer look at projects that respond to real needs in a way enabled only by cryptocurrency, distributed accounting technology and blockchain.
In short, it's the worst of times, but it's also the best of times.
Do you have a hot review of 2018? CoinDesk is looking for collaborators for the 2018 year in question. Send an email to [email protected] to share your thoughts about the year in the crypt that it was.
Steel shavings via Shutterstock
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