Prediction #1: Valuation metrics for crypto will become more mainstream
FALSE. Crypto valuations has made a lot of progress this past year , including:
Prediction #2: The ICO “Distressed” opportunity will emerge
FALSE. We expected there to be M&A, tender offers, activist campaigns (we even unsuccessfully attempted one) and just plain distressed value investing (like buying tokens where cash value in Treasury was greater than token value). But none of these have materialized yet. This is partially due to lack of transparency from token projects, but is mainly due to a lack of capital into funds dedicated to these strategies - the legal bills alone will be massive. There is a still a huge opportunity here, and only a select group of former Wall Street-run crypto funds are positioned to take advantage of these dislocations.
Prediction #3 Bitcoin and Bitcoin Cash will not become a Medium of Exchange
TRUE. Thus far (at least in developed countries). Stablecoins have and will become mediums of exchange, whereas Bitcoin will continue to be a store of value, and other select digital assets will simply be quasi-equity like assets. We believe this can change in the far distant future once tax consequences are loosened, mobile “banking”-like apps become more user-friendly, and volatility subsides. As such, Bitcoin’s progression will be SoV->MoE->UoA.
Prediction #4: Value accretion will switch from service providers to applications
MIXED. On the one hand, equity valuations of crypto service providers (exchanges, miners, data providers, trade systems, custodians, OTC desks) have been trending down because the market has way too many service providers relative to the people/firms that they service. On the other hand, we still haven’t seen many “killer apps” develop. This shift is starting to happen - it’s just taking longer than expected and there are fewer success stories. For example, companies like Brave, Flexa, HXRO, and Lolli are growing users at a rapid clip and have increased their equity valuations, but this is still a small sample size of everyday crypto apps that have penetrated the market.
Prediction #5: The market will separate into “Haves versus Have nots”
TRUE. We’ve been pretty vocal on this topic, and it has been quite accurate. There are far more losers than winners in 2019, and this has largely been based on themes. Bitcoin aside, most of the legacy decentralized digital assets that took the market by storm in 2017 have largely died out or moved out of favor with the possibility of never recovering, while new up-and-coming companies that utilize tokens have moved into favor. We think this trend will continue.
Prediction #6: ETH will underperform ETH-related tokens
TRUE. We made this argument pretty succinctly, and took a lot of heat for it from Ethereum fans, but we were pretty accurate. Ethereum is one of the most important developments in all of crypto, with so much of the ecosystem built on top of, or connected to the Ethereum blockchain. But the ETH token itself has failed to capture this value (negative 2019 return), while tokens of projects that are derivatives of the ecosystem (MKR, SNX, LINK, etc) have performed much better.
Bitcoin officially entered the Global Macro spotlight
Rise of innovative token uses cases beyond currency
Infrastructure Boom
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Statements in this communication may include forward-looking information and/or may be based on various assumptions. The forward-looking statements and other views or opinions expressed are those of the author, and are made as of the date of this publication. Actual future results or occurrences may differ significantly from those anticipated and there is no guarantee that any particular outcome will come to pass. The statements made herein are subject to change at any time. Arca disclaims any obligation to update or revise any statements or views expressed herein. Past performance is not a guarantee of future results and there can be no assurance that any future results will be realized. Some or all of the information provided herein may be or be based on statements of opinion. In addition, certain information provided herein may be based on third-party sources, which is believed to be accurate, but has not been independently verified. Arca and/or certain of its affiliates and/or clients may now, or in the future, hold a financial interest in investments that are the same as or substantially similar to the investments discussed in this commentary. No claims are made as to the profitability of such financial interests, now, in the past or in the future and Arca and/or its clients may sell such financial interests at any time. The information provided herein is not intended to be, nor should it be construed as an offer to sell or a solicitation of any offer to buy any securities, or a solicitation to provide investment advisory services.
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