Written by: Kevin Yang, Partner at IDEG, Investment Partner at Fundamental Labs
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Industry Overview and Trends
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Figure 1: Comparison of cryptocurrency and macro asset financial markets, source: Bloomberg
When we look at it from a macro perspective, the cryptocurrency market is still a baby. The picture above makes me both frustrated and excited. Yes, although it's small, it has huge potential. As a veteran of the digital currency industry, I feel obliged to support and promote the development of digital currency innovation.
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Figure 2: Dominant trends for Bitcoin and Ethereum, source: coinmarketcap.com
From 2013 to 2016, Bitcoin dominance fell slightly from nearly 95 percent to 80 percent. Due to the deluge of coin offerings in 2017, Bitcoin’s dominance dropped sharply to 35%. Meanwhile, Ethereum’s dominance jumped to 30%. At that time, Ethereum had a chance to turn around, but it was a turbulent period of "forking Bitcoin". Not since 2018 have we seen Bitcoin dominance steadily exceed 70%. If you ask me why, I would say that it is because of the deep development of the public chain ecosystem and the real innovation of DeFi applications. I predict that in the future Bitcoin dominance will drop further to the 20-30% level. Lower Bitcoin dominance will benefit the industry in several ways. For example, we may say goodbye to the "doomed" 4-year bull-bear cycle, which is mainly driven by Bitcoin's halving mechanism. Solid apps with unique fundamentals will emerge independently and become decoupled from the pie. If that comes true, crypto VCs will have their golden years.
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Figure 3: Bitcoin chart and Coinbase listing
On April 14, Coinbase listed on Nasdaq, the same day Bitcoin peaked. The listing of Coinbase shows that equity investing is possible in the cryptocurrency market. Not all startups need to issue tokens to raise capital. A16z has raised a $2.2 billion fund, and dozens of cryptocurrency venture capital firms have raised hundreds of millions of dollars. Gone are the barriers that prevent traditional investors from investing in the cryptocurrency market. I see a big influx of traditional venture capitalists in the next 2 years. Another model is also emerging, imagine a portfolio investment model of "equity + tokens". Chia is accelerating its IPO timetable, which may be a symptom of this new model.
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Figure 4: Crypto plans of TradFi institutions, source: Bloomberg
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Figure 5: ETF applications in the US, source: open information collected
TradFi institutions and ETFs will provide a more mature infrastructure for large-scale applications. 2020 is just the beginning, and the larger institutional wave is accelerating.
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Figure 6: Regulators in cryptocurrency hotspots
If we want the crypto industry to grow on a larger scale, we must embrace compliance. The recent regulatory storm in China has had a swift impact on the crypto ecosystem in the local market. Regulators around the world have warned some top centralized exchanges and shut down fiat access. If the market grows to a larger scale, it will inevitably face regulation head-on.
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Figure 7: Exchange Incubation, Issuance, and Circulation Ecosystem for Reference
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Investment Strategy
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Figure 8: Some infrastructure for reference
As mentioned above, equity investment is becoming a trend in the crypto market. Many startups will become blue chips in the next few years. For stock investors, they need to consider the macro layout of the encryption market. Find the key tracks, find the key players, find the best team.
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Figure 9: Top ecosystems for reference
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Figure 10: My predictions for the Uniswap V3 ecosystem
I want to mention Uniswap. In my opinion, Uniswap is not just a single DeFi application. Based on Uniswap, it is possible to form a complete trading ecosystem. Curve V2 is still following the old path of being a one-stop shop for users/traders (I don't deny the value of this approach). But Uniswap purely focuses on liquidity construction and self-driving oracles, which are very important for the decentralized trading ecosystem.
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Figure 11: Some key innovations for reference
final thoughts
final thoughts
I would like to quote a famous passage from Charles Dickens' novel A Tale of Two Cities:
“It was the best of times, it was the worst of times; it was the time of wisdom, it was the time of foolishness; it was the time of faith, it was the time of doubt; it was the season of sunshine, it was It was a season of darkness; it was a spring of hope, it was a winter of despair."
Pessimists are often right, but optimists are often successful.
