The Bottom Line.
In this financial markets Insight, Cryptology Managing Director Jack Chia provides some food for thought on what the recent ups and downs in the global ICO and crypto market mean. Jack sees two important trends here: the rise of Security Tokens Offerings (STOs) and the arrival of new Blockchain applications capable of bringing a large number of companies into a new era of business. His point of view is clear, however: current ICO and crypto developments lead to one conclusion: Blockchain projects developed as Minimum Viable Products (MVPs) will have to do much better from now on.
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Blockchain investment and ICO peaking: the end of MVP tokens?
[By Jack Chia]
Crypto markets have gone up and down over the past year. Big ups, and big downs, in reality. In this insight, I undertake to pen down some conclusions and food for thought as to what lessons can be drawn from the trend. Because whether we like it or not, the things that currently take place are the result of many developments and they will have an impact on the cryptomarket as we currently know it.
Some thoughts on the Blockchain market.
Let me start with some food for thought on Blockchain as an industry.
The Blockchain is a very powerful social phenomenon akin to a millennial revolution against centralization/monopoly, existing powerful cartels, corruption, and inequality.
This movement started small and it is still gaining traction. In fact, I truly believe that in the next year or so there will be a few mega Blockchain systems formed around two to three major industries focused on functionalities such as Remittance, Supply Chain and Settlement.
There will also be a wave of projects trying to harness the power of Artificial Intelligence and big data in the Blockchain industry. This would enable more transparency in the AI governance which then translates to a more equal distribution of wealth.
Current market conditions.
Beyond ideas, what is the current reality of the Blockchain market, however?
At the moment there are between 30k – 50k blockchain companies. Most of which are inactive. Of those that are listed on coinmarketcap.com (2100 of them), the total market capitalization as of October 2nd, 2018 was $223 billion. The top 10 currencies constituted 85% of this at $190 billion, which left 33 billion to be distributed among 2090 currencies. Contrast that with an all-time high of $826 billion on the 7th of January earlier this year, this a technical depression with a drop from the top of 73%.
To broaden the context, let us step back with an example outside the blockchain industry. During the Great Depression of the 1930s, the Dow Jones Industrial average went from a high of 380 points in September 1929, to a low of 200 points in November 1929 (47% decrease) and then recovered to 300 points in April 1930 and back at 200 points in October 1930. Rings a bell?
If a similar model applied, a massive consolidation would seem to profile itself. Said differently, things might get worse towards year-end before it picks up after these consolidations. I do not think that this current condition is termed as a “bear market”, it is a greed-induced death spiral initiated by some bad actors in the industry and from which, unfortunately, most of the tokens will not recover.
On the bright side, I am however anticipating two things.
The rise of Security Tokens Offerings.
One is the rise of the Security Tokens Offerings (STOs). For those who are unfamiliar with the term, STOs are security tokens tied to real securities, which may represent tokenized assets.
Sometimes, these tokens could be seen as “digital shares” of a company allowing the holders of these tokens to receive dividends. Alternatively, STOs could be used to fractionalize ownership of assets such as buildings, real estate or even works of art.
To sum it up, the token holders can be given a variety of rights, which may include equity ownership, periodic dividends, cash flows, debt repayments, voting rights, etc. And all these are codified from the beginning, since the issuance of the token, in the form of a smart contract.
Right now, the secondary market for these type of tokens is almost non-existent, which means that with the adequate regulations and with the introduction of security token exchanges there could be an untapped market to explore. This, in fact, could serve as a bridge for traditional finance and Venture Capitalists willing to come into the blockchain industry. Remember that so far, with the ICO business model, only companies rooted in the Blockchain were able to raise funds. With STOs, however, any company from almost any industry might in the future be able to raise funds. Blockchain or not!
New Blockchain Technology applications.
The second thing that I am expecting is the apparition of new blockchain technology applications to real use-cases in the real world.
Said differently, as time goes the Blockchain technology will help to bring costs down whilst processes will become more efficient. For example, on the 25th of August, the Singapore Exchange (SGX) and the Monetary Authority of Singapore (MAS) announced that they are exploring ways to trade assets efficiently and safely using the Blockchain technology.
It was also stated that these authorities will collaborate with tech firm Anquan, accounting giant Deloitte and Nasdaq to develop Delivery versus Payment (DvP) capabilities for settlement of tokenized assets across different blockchain platforms. As a reminder, DvP is a settlement procedure in which securities and payments are simultaneously exchanged to ensure that the securities are delivered if and only if the corresponding payment is made.
Thus, putting these processes on the Blockchain would definitely make things more transparent, efficient and lower the cost per transaction. The actual application of the blockchain in everyday businesses would validate the industry and allow it to grow and improve.
Trends: the bottom line?
The bottom line, therefore, comes as follows: Blockchain investments in ICOs are reaching a peak. Investors are more careful with the way they use their capital, and choosing projects stronger than ‘Minimal Value Products’ (MVPs) has become important.
I would, accordingly, brace and prepare for a much-needed washout, followed by consolidation and then recovery. The surviving minority of tokens after the washout will be those that deliver genuine value, genuine liquidity, and genuine utility. Meanwhile, I will be looking out for opportunities in the security token arena.
This, of course, is a personal analysis and should not be considered as a form of financial advice whatsoever. Everything we hear is an opinion, not a fact. Everything we see is a perspective, not the truth. – Marcus Aurelius.
Jack Chia | Blockchain & Crypto Expert Contributor, Cryptology.com Managing Director.
Jack Chia is the Managing Director at Cryptology.com and a Blockchain Enthusiast experienced in running digital exchanges and ICOs. He started trading Bitcoins in 2012, occasionally writes research papers on Blockchain technology developments and on its role in society and life.
A permanent learner and a coach, Jack Chia has 19 years of regional work experience in business development and operations (Malaysia, Indonesia, Thailand, Singapore, and Vietnam).
Disclaimer: The views expressed are those of their author(s) only and do not reflect those of The Asia-Pacific Circle or of its editors unless otherwise stated.
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