Never Judge a Book By Its Cover
User Growth, Bakkt & Emerging Market Trends
2019 is already shaping up to be a promising year for blockchain and cryptocurrency. Despite the downturn of prices in crypto markets, the march of tech innovations and user adoption of cryptocurrency continues unabated, revealing that the health of the underlying ecosystem is as lush as ever.
According to the Cambridge Centre for Alternative Finance, worldwide unique cryptocurrency users climbed from 18 million at the end of 2017 to 35 million at the end of 2018. Even through prices dropped up to 90% over the year, the global userbase of cryptocurrency nearly doubled in that same time frame. Several pending exciting developments point to a potentially skyrocketing ecosphere over the next year.
Percolating Innovations: Patience and Diligence Bring Rewards Without Measure
First off, it is absolutely imperative to remember that innovations take time to develop. Even with the increasing pace of technological development, fruition can still be measured in years or even decades. Take cell phone data transmission, for example. Not even ten years ago, it was regarded as little more than a novelty. Phone app developers had to squeeze every bit of efficiency out of the data stream to use it effectively, and the latency and bandwidth limitations made the idea of a hotspot offering broadband Internet access nothing more than a pipe dream. Today, cell phone hotspot technology has not only completely conquered the capabilities of land-based internet of its original timeframe, but the latency and throughput have improved to even rival present-day broadband connections. Those that spent the time and effort to hunker down in a burgeoning but challenging environment reaped reward beyond measure a decade later for their efforts.
The cryptocurrency sphere is approaching an opportunity for such a giant leap forward. At this time, only 3% of the world’s investors currently are vested in cryptocurrency – and despite that small percentage of market penetration, valuations hit nearly $900 billion in 2018. The level of untouched market opportunities for cryptocurrency closely resembles the beginning of the smartphone era; a wide-open vista ripe for innovation. As cryptocurrency becomes easier to acquire and use over time, borne on the back of these venerable voices and promoters and the technological acumen of its developers, there will be a similar age of development and innovation. Irrespective of the market drop of 2018, one thing is clear: the desire, use cases, and community support for blockchain and cryptocurrency are stronger than ever.
Bakkt and its Massive Implications
The impending launch of Bakkt dovetails nicely into this growing cryptocurrency vista. Bakkt is owned by the Intercontinental Exchange (ICE) which owns the New York Stock Exchange as well as a host of stock exchanges around the world, and represents the first-of-its-kind regulation-compliant global exchange for cryptocurrency.
Powered by Microsoft’s cloud technology, Bakkt will break new ground by providing users the ability to pay for common everyday products such as Starbucks coffee and Microsoft software using cryptocurrency without the user needing to manually convert from fiat. This breaks down one of the largest adoption hurdles in that users ask, “what additional value do I gain for performing this extra step?” While the use cases and benefits for cryptocurrency are already well known, the removal of the fiat middleman for individual transactions will make it far more accessible for casual users who just want to pay for their purchase and get on with their day. This casual adoption will create demand, in turn fueling the desire of the best and brightest developers to continue to migrate to the crypto space. In addition to providing an easy method of acquiring cryptocurrency, Bakkt will provide user-friendly transactions, liquidity, and a trusted, compliant environment to buy, sell, spend, and develop on.
Bitcoin Halving
There is another development pending, and that is the Bitcoin halving event, set to occur around May 25, 2020. Bitcoin is set to halve the number of coins awarded with each mined block every four years, which helps constrain the supply of money. In the prior halving events in 2012 and 2016, there was a run-up in price that continued to trend upwards. In fact, the average peak price increased over 200% every time there was a halving event. It’s clear that the tightening supply causes a significant increase in price on its own – now imagine the impact of a halving event along with a demand surge precipitated by an userbase empowered by increasingly easy to use cryptocurrency. It would stand that a revival of bitcoin prices seems more and more likely with each passing day.
The Launch of Grin: Remembering Your Roots
On January 16, 2019, a promising new project named Grin launched that is not only founded on the original design narrative of Bitcoin, but brings those aspects to the next level. Bitcoin was originally developed with transaction speed and anonymity as two of its selling points. Over time, however, Know Your Customer (KYC) regulations and network growth threatened to erode these founding principles.
Grin is built on the MimbleWimble protocol which also leverages another innovation known as CoinJoin developed by Dr. Greg Maxwell. Together, these protocols prevent transaction addresses or amounts from being revealed, as well as combining multiple transactions into one block.
Also of note is that Grin successfully launched without the involvement of investors; rather, the development has been supported entirely by donations and community involvement. Bitcoin was founded under the principles of decentralization and distributed power, and Grin is adhering to those cornerstones.
Decentralizing Organizations in an Increasingly Interconnected World
Cryptocurrency itself was a vanguard with its concept of decentralization. As the world grows increasingly interconnected, it becomes ever more important to ensure that no one party holds a controlling stake in its operations. In 2001, BitTorrent released organizations from the grip of web hosting providers by allowing them to distribute large file packages by leveraging community support instead of incurring onerous hosting fees, and today it is estimated to comprise 20% of all Internet traffic. Cryptocurrency is well on its way to achieving for value store and transmission what BitTorrent achieved for Internet logistics.
The need for decentralized or peer-to-peer lending has been demonstrated by the rise of services such as LendingClub and Prosper which have grown into financial juggernauts in their own right. However, these services are in fiat currency and are still bound to those limitations – lending across different currencies is still difficult, borrowers are still subject to the vagaries of lender approval, and the owner of the financial systems will still take a significant cut through the process. Cryptocurrency can provide a suitable alternative to these services without being bound to regulations, allowing for purely community-driven lending.
The events of 2018 revealed that organizations can be “de-platformed” at the whims of their service provider. Political movements from all areas of the spectrum have found their legs swept out from under them when their financial service provider such as PayPal or Patreon has found them to be a liability; even though these organizations may be community funded, those funds are funneled through a single point of failure and if that section of the chain is broken, content providers might still find themselves cut off from their communities. The distributed nature of cryptocurrency returns that power to their communities and provides a promising new avenue to work around the looming threat of de-platforming.
Noteworthy Developments
- With its year-end report, the United Nations referred to cryptocurrency the “new frontier” in finance, as it states that blockchain and cryptocurrency have the ability to break efficiency barriers currently found in fiat currency systems.
- The Russian government is planning on purchasing as much as US $470 billion in Bitcoin in a staged development in a desire to hedge its financial reserves and protect itself from economic sanctions. Vladimir Putin’s administration appears to be desiring that $10 billion of that purchase occur in Q1 of 2019.
- Hong Kong entrepreneur Li Ka-Shing with an estimated net worth of US $37.7 billion has been identified as one of the premier investors in Bakkt’s first funding round ending in December 2018. Li oversees a swath of businesses in diverse fields including energy, utilities, financial services, and real estate.
- Bittrex has announced plans to offer an over-the-counter trading desk that supports over 200 cryptocurrencies. Currently offered to only certified investors with a minimum investment of US $250,000, the platform will allow two parties to trade directly rather than relying on a centralized exchange.
Conclusion
The cryptocurrency space is ripe for a vast expansion after the price drops of 2018. High profile investors have not shied away from continuing to invest, nor have prominent developers and stakeholders been stymied from completing their projects. Even though the overall userbase has doubled in the space of one short year, there is still a wide-open expanse open for the taking and investors and developers alike are rushing to stake their claim.
If you have questions about our fund or would like to be sent investor documents, you can contact our investor relations department at [email protected]/.website_ad411e93.
Regards,
Darius & Saul
Managing Partners
