Hello once again! Yesterday, CoinDesk released their research on the State of Blockchain 2018 for the first quarter. If you are not familiar with CoinDesk, I would highly recommend adding them to your bookmarks. Coindesk is a news and information site working to inform, educate, and connect the global Cryptocurrency community. I have found that they provide very thorough research, interesting insights, and relevant news throughout the day. Their ‘State of Blockchain 2018’ is a great presentation that provides their research regarding market trends, data, and events so far in 2018 and how they compare to past years. Today, I wanted to talk about what I think were some key topics presented!
Bear Market of the First Quarter
To start, CoinDesk presents quite a bit of data regarding the ‘Bear Market’ of the first quarter. They don’t necessarily present any conclusions as to the cause or potential length, but the data they give is quite interesting. I think we can definitely draw some of our own conclusions from it. The overall Cryptocurrency market is down 58% in the Q1 or about $350B. Over the course of this time, overall transactions on the most popular Blockchains have consistently declined. Google Searches for popular Cryptocurrencies have also consistently declined throughout the first quarter. Finally, Bitcoin also seemed to reassert its dominance as it returned to 47% of the market from 37% at the beginning of 2018 suggesting people returning to the more ‘safe’ investment in Bitcoin. To me, these all show a pull back in usage, interest, and investing risk.
So what was the cause of this market decline to start 2018? Well, since they don’t provide any outright suggestions, I’ll take a guess and say two reasons: overbought and underprepared. By overbought, I believe it was a simple case of a rapid rise that got out in front of technicals. Cryptocurrency was purchased more rapidly than what the technology and currencies justified and could sustain. People were purchasing because of the market momentum, not because it was a strong buy or a long-term hold. This is further justified by the fact that, for the first time ever, the number of Coins on exchanges exceeded the number of Coins on respective chains. This shows investors were joining exchanges to ride the price, not to adopt or invest long-term.
I also believe that the Cryptocurrency market in general was underprepared for the large interest and awareness it received in January. The technology and implementation ability across the board did not yet support the Market Caps that most coins had risen too. Do I think those prices are forever too high? Of course not. But I think many Coins and Tokens need more time to develop their product and platform to justify higher prices to the outsider looking to get into Cryptocurrency for the first time. In the end, I think it’s a healthy pull-back from an unsustainable rise given where the technology is at right now.
Community is Growing
Another promising takeaway is the fact that the Cryptocurrency developer community is growing. The number of differentiated technologies and new platforms is increasing faster than ever. Despite the consistent market decline of the first quarter, developers with new technologies and ideas still seem to be flocking to Cryptocurrency. Not only are the number of new ICOs rapidly increasing in 2018, the total investment in initial ICOs from Venture Capitalists and regular investors is also at an all-time high. This shows both investors and developers are still quite excited about Cryptocurrency and are willing to support new Cryptocurrencies. In my mind, this supports the eventual feasibility and adoption of Cryptocurrency as well as supports the idea we are currently experiencing a healthy pullback. If people are willing to invest and develop, it means people believe there is a real chance of eventual success.
Another topic I want to mention is their idea of ‘Calculated Interest’. CoinDesk uses their own methods to estimate various types of interest including Developer, Price, Social, Network, and Exchange for each Cryptocurrency. The big takeaway from these slides is that Ethereum has the largest interest by far in the Developer and Network categories. This makes sense based on the number of tokens being developed on their Network, but I think this shows fundamental use and necessity for Ethereum and its network. This, in turn, is a strong support for Ethereum investments in my opinion. In addition, all the other major protocols on which Tokens are developed saw growth in the first quarter as well. NEO, Waves, and Stellar Lumens all showed growth in platforms being developed on their protocol. In my mind, new protocols providing increased competition for Ethereum is very healthy for the market and those individual coins.
Community Notes from Surveys
Finally, CoinDesk also provided some cool statistics it has collected from its readers through surveys on slides 56 to the end. While I don’t think there’s anything too insightful to pull from this information, I do think the results show some good insight into where we are the Rogers’ adoption curve here:
The adoption curve illustrates what percentage of people adopt a successful product over time. Looking at CoinDesk’s survey information, I think that the main users and investors in Cryptocurrency are strong and fervent supporters of the technology. Based on the fact that a large percentage stated they would never sell their coins even if the value plummeted and that the market is generally undervalued right now, I think the current owners are those that fundamentally believe in the future and use cases of Cryptocurrency. Taking this a step further, I think this shows we have not reached the average investor or adopter yet. This is consistent with those that make up the Early Adopter phase in the adoption curve. They are adopters who are strong supporters before the technology or product has fully proven itself. If that curve holds, we should hit the Early Majority soon which begins adoption by the average consumer. There is still a ways to go, but it is certainly an exciting future to think about! To those of you who want to join the Early Adopters while you still can, learn the basics first and then check out my beginner guide here!