Image Credit : https://www.colourbox.com/image/golden-bitcoin-coin-falling-in-fire-flame-image-30672576
Disclaimer: Points shared in this article are based on my own personal understanding of the Cryptocurrency space and also, conversations that I have had with several blockchain developers and VCs. They are not meant to be financial advice nor should it be viewed as concrete evidence to current market circumstances.
A huge flaw resides in every due diligence done by retail investors. Most retail investors lack the knowledge to codes and programming thus, making it near impossible to evaluate the development of a Cryptocurrency. Retail investors then turn to Youtube, social media and/or friends to provide hints and clarity on the matter. The constant coverage on Bitcoin from mainstream media as well had contributed to the misconceptions that investing in Cryptocurrencies was a quick way to wealth. Mainstream media largely focused on the huge growth Bitcoin has had since its inception, rather than the revolutionary characteristics of Blockchain. This has unfortunately led to a snowballing effect to the enormous, unsustainable explosion of prices back in December 2017.
This article perfectly encapsulates the current stage of Cryptocurrency investing by retail investors :
The birth of a new asset class: crypto assets. Part I: Retail investors love magic beans_This post reflects my personal views on the current crypto market._medium.com
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Disclaimer: The points discussed in this article hopes to bring a different perspective for retail investors when doing their due diligence. It is derived from my very own understanding of the crypto-sphere, my own conversations with Blockchain developers and with institutions, VCs, and angel investors.
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Point 1 — The Champions of Blockchain Technology
Credit: https://hackernoon.com/the-flippening-ethereum-vs-bitcoin-2ac80a953ebb
According to several developers that I have spoken to, it does not require a level of genius like Vitalik Buterin to run and initiate smart contracts on Ethereum’s platform. Anyone with a certain programming background can do so.
For that reason, I call Developers the Champion of Blockchain Technology as they are almost solely responsible in leading this industry forward.
The reality, compared to other blockchain enterprises, Ethereum’s platform is at a very high level in terms of usability, stability and security.
What does this mean?From an economical standpoint, other Blockchain Protocols were MASSIVELY overvalued. They are simply not ready for commercialisation yet.
Similar concept to why there are such things as High-end products and Low-end product in the same company. The gulf in expertise required in building the high-end product is massive as compared to the low-end ones.
Mr Buterin is widely recognised as a genius in the world of Cryptocurrencies having brought us the whole concept of Decentralised applications and there is arguably, no one in the world who can compete with his stature in the Crypto industry. Vitalik Buterin is to Ethereum, equivalent to what Elon Musk is to Space X or what Lionel Messi is to Barcelona F.C. Sure, these are companies/entities that are great in their own rights and will continue to live on but with these figureheads, they are just that extra bit more special.
Why is this important?
Image Credit: http://cryptopost.com/ethereum-vs-bitcoin-double-bottom-formation/
There are only 2 coins in which, most Blockchain developers have unanimously invested in: Bitcoin and Ethereum. What does that tell you? Despite working in their own respective blockchain projects, the guys who are championing the development of Blockchain Technology agree that Bitcoin and Ethereum are the leaders in the Crypto-space with a high technological growth and real-world application potential.
To have a comprehensive overview on a project, we have to be able to listen to these back-end developers as they know what it takes for Cryptocurrencies to succeed in the long run just by looking at their codes and the frequency of their updates. Blockchain technology and smart contract protocols are incredibly secure but if a single bug is to be found, it is compromised. Coming from another angle, these developers are responsible in making ensuring your investments will profit. Therefore, the question to ask is “Are the developers of this company good enough to make me money from my investment?”
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Point 2 — High Entry Costs For Blockchain Protocols
I have never notice this until it was pointed it out — there are not many ICOs on other platforms other than Ethereum. The sole reason for this is the high entry cost for other blockchain platforms. There are two major factors in my humble opinion that are at play here:
ECONOMICS
Since the start of 2018, we have seen a decline in Cryptocurrencies’ value. Money have been leaving the market in spades. Imagine what has happened to the BTC and ETH you have sent to ICOs — they have lost their value which essentially means, ICOs have lesser funds than intended to proceed with their original plan UNLESS they manage to cash all of their raised funds into FIAT.
As compared to NEO or other platforms, I have been told that Ethereum is unparalleled in terms of costs and usability. The difference in cost is apparently massive. Therefore, if a company wishes to integrate smart contracts into their business, would they not go for the cheaper alternative?
Considering the fact that Blockchain technology is still at its infancy, the demand for real-use cases is relatively scarce at the moment.
TECHNOLOGY
How to do an ICO on Ethereum in less than 20 minutes._Congratulations, you finally found it. This is exactly what you were looking for all over the internet._medium.com
Why Bitcoin apps are hard, and are Ethereum apps easier?_Fred Ehrsam, Vitalik Buterin and Chris Dixon recently discussed Ethereum on an episode of the a16z podcast._medium.com
Apparently, it is easy to conduct an ICO on Ethereum as it is cheaper, faster and less complicated than running it on NEO for example. I will not dwell on the technological side for long as I am not as knowledgeable nor able to articulate my thoughts well enough to elaborate further..
UPGRADES TO BITCOIN AND ETHEREUM
Next thing I’d like to touch on is — every other platform besides Ethereum claims (or hopes) to be better or than Ethereum — faster, cheaper, solving scalability. But what if Ethereum is already working to be faster, cheaper and solves scalability? Enter Casper.
And Bitcoin’s equivalent is Lightning Network.
Most developers I have spoken to agree that when Lightning Network and Casper have successfully been integrated into Bitcoin and Ethereum respectively, it would solve every major problem that these two entities have encountered all these years. Lightning Network will make Bitcoin more attractive than Litecoin and Casper can potentially turn Ethereum into THE leading blockchain platform.
Having said all of these, my friends, the cryptocurrency market is still relatively young and requires time to fully mature. Having said that, there can very well be a time when a crypto company can rival with Bitcoin and Ethereum in terms of stature and popularity. But for now, the top 2 crypto-assets are incomparable.
The months of Nov and Dec are anomalies in the world of investing, making most crypto-asset more expensive than it actually is. Call it market manipulation or cartels but perhaps the market today is just recovering from its late 2017 exuberance and are approaching their ‘fair value’.
The market is being manipulated sure… but that is how trading and investing work. It is manipulated by people who are being paid hundreds of thousands of dollar PER YEAR to move markets. We are just little fishes in the vast ocean of sharks, whales, megalodons and other monstrosities.
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Point 3— BLOCKCHAIN PROTOCOLS OUTSIDE OF COINMARKETCAP
ETHEREUM TRUE COMPETITORS
Ethereum’s true competitors exist outside of CoinMarketCap and are called Hyperledger, IBM Bluemix Blockchain, R3, Quorum by JP Morgan (bastards xD) and many more.
Companies like Hyperledger and others are targeting commercial and corporate clients directly. Just take a look at Hyperledger’s members and participating entities: https://www.hyperledger.org/members.
Something I’d like to share is R3 and Project Ubin, Singapore’s attempt to create a digital SGD — http://www.mas.gov.sg/Singapore-Financial-Centre/Smart-Financial-Centre/Project-Ubin.aspx
R3 has commercially launched its open-source blockchain platform_Blockchain consortium R3 has commercially rolled out its open-source blockchain platform, dubbed Corda Enterprise…_www.businessinsider.com
Imagine Singapore’s entire currency on the blockchain, it will be incredible! But, will it increase Bitcoin’s value? Highly unlikely, as they are using the Corda Platform which is not listed in Coinmarketcap. R3 will perhaps increase in value but it wouldn’t affect the crypto market one bit. Only way to profit from this collaboration is to have invested in R3. However, R3 in particular, is not looking too good at the moment.
Blockchain Firm R3 Is Running Out of Money, Sources Say_R3, a startup that raised $107 million to bring blockchain services to the financial sector, is floundering and may run…_fortune.com
Only the true developers, institutions and accredited investors know about companies like Hyperledger, IBM, R3 etc and are invested in them via private sales and over-the-counter purchases. The rich folk are investing in Blockchain Technology but are they investing in coins that are on CoinMarketCap?
The importance of Dapps development is SUPER important in Cryptocurrency which is why Ethereum ranks second after Bitcoin because of their apparent seamless integration.
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Point 4— Venture Capitalist, Institutions, Private Investors and how they invest
For a while now, we have been hearing news or rumour that the big money people are coming to save us. These are the guys who are able to move markets and possess money (to be put it bluntly) throw around. It is important to understand HOW they think. Yes they exist to make money but how they plan on making money is important.
Venture Capitalist Fundamentals
Their number one goal as I have been told is to have STABILITY IN LONG TERM INVESTMENTS. First and foremost, their money serves as a contract in helping a startup or a company succeed in the long run and then the profits Thus, they are incredibly risk averse (more than retail investors) and do not seek high gains in short periods.
Read this article to understand how VCs look at returns:
The meeting that showed me the truth about VCs_I recently had a meeting with a well-known Israeli startup investor. The talk somehow pivoted from my seed-seeking…_techcrunch.com
I am sure everyone has heard the statement above where 90% of all startups fail. Venture Capitalist and other big investors know this all too well which means they are HIGHLY selective in their investments and have access to people with years of experience in assessing potential projects.
How Do Venture Capitalists Make Decisions?_Decrypting the black box of VCs: How venture capitalists make decisions about their investments and portfolios…_medium.com
My Summer in the Venture Capital World_Lessons learned and tips from a young VC’s perspective_medium.com
What You Need To Know Before Raising Venture Capital_And How Venture Capital Firms Work_hackernoon.com
What does this mean with Cryptocurrencies, an asset notorious for their volatility? A good guess: Either they do not gauge their profits based on Coinmarketcap or they are investing with a much longer horizon in mind.
Crypto Investing without the volatility
We can say, “But Bitcoin will go up in the next 5 years for sure!”. But as any smart economists and investors will say, “We will never know what the market will do tomorrow.” These VCs have investors’ money by the MILLIONs and as much as possible, they will avoid exposing their money in such a volatile market. What do they do then? Look at Point 2 above. They have found a way to invest in Cryptocurrencies WITHOUT exposing their money to the volatility.
8 Benefits of Blockchain to Industries Beyond Cryptocurrency_6 min read Opinions expressed by Entrepreneur contributors are their own. Heard about Bitcoins and cryptocurrency…_www.entrepreneur.com
Retail Investors are always at a disadvantage
Venture Capitalist, Angel Investors and private institutions all have their own ideology. First and foremost, they are looking for ways to make more money as are all of us. However, it is important to note that the resources available to an angel investor is completely different than retail investors. It could be a wide range in experience, previous successes, wealth or connections.
Retail investors are only limited to our personal computers and our go-to method in finding investing information is through search engines, youtube, and other social media platform. Therefore, we rely on ‘trustworthy’ external individuals like Youtubers, Twitter accounts to help in our decision making. There are some who are genuinely passionate about the Crypto market and retail investors however, it is important to know that these influencers are exposed to more knowledge than the average Joe.
They are not immune to loss
Venture Capital and Its 33% Success Rate | jtangoVC.com_Fred Wilson has another awesome post today about how hard it is to create real companies. He wrote: I have said many…_jtangovc.com
The Venture Capital Risk and Return Matrix_Born amidst the dot-com crash, we understand firsthand the challenges of illiquidity. Over the last two decades, we…_www.industryventures.com
Venture Capitals are not immune to loss. According to the article above, 60% of VCs do not return capital. That is a huge amount in my opinion. Therefore, as much as we would like to ‘follow the big money’, it is not entirely guaranteed as well.
Similarly to retail investors, they look to diversify their portfolios with assets that present different projected growth potential, risk potential and stability.
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Thank you so much for your time but this is not the end of the discussion as it is only the first part of two.
Cryptocurrencies: What Retail Investors Should Know (Part 2)_Disclaimer: Points shared in this article are based on my own personal understanding of the Cryptocurrency space and…_hackernoon.com
Here you can read my price analysis of Bitcoin for the month of July.
Bitcoin Price Analysis — July Month Outlook_Let me begin by saying, these are merely my own studies and observations. My studies are not financial advice and only…_hackernoon.com
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Are retail investors nowadays doing enough prior to investing?
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Iliya Zaki is the Marketing and Community Manager for Moonwhale Ventures.
Moonwhale Ventures is a Consultancy for Blockchain Applications in Corporations, SMEs or Listed Companies to improve the efficiency of the value chain, and new innovative ways to funding business expansion through STO, ICCO (tokenization).
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