Markets are a giant conversation. Whenever there’s something massively new, there’s a lot to talk about. So the market conversation becomes… volatile.
Three months, 1,000% price range. Wild!
Think Back To The Tech Bubble
The issue in the Tech Bubble was that everyone could see the boundless potential of internet-enabled technology… but we had to decide who would actually execute, not to mention how and when.
theGlobe dot com - Perhaps the most famous dot-com fizzle, this social networking site priced at $9 and hit $97 on its very first day. Two years later it was nearer $1/sh. Social networking was indeed a massive opportunity, but it would take Friendster, Bebo, MySpace, and more to finally get to Facebook.
WebVan - Ordering your groceries online sounded cool enough to IPO at a valuation north of $1 billion. The next year it bought competitor HomeGrocer for $1.2B. The year after that its stock price was 6¢. We’re still working on this one today, from Blue Apron to Amazon’s recent acquisition of Whole Foods.
America Online - Everyone knew the internet needed a mediator, and AOL was at the top of the heap. Its merger with Time Warner was the largest in history, two $160 billion companies coming together! It was the best mediator of the day, but it did not expand from its dominance of the dial-up ecosystem.
What Does Blockchain Do?
Blockchain technology was invented in 2008 by Satoshi Nakamoto as a transaction ledger for Bitcoin. Basically, it is a database of records that is distributed rather than centralized, in this case maintaining the records of who owns how many Bitcoins while retaining privacy and security.
How could this technology solve big problems?
Blockchain as currency. Some people have a big problem with their currency options. The rich in China may want to move money around, and those concerned about fiat currency and a sovereign debt bubble may seek a new medium of exchange and store of value. Then there is criminal activity. But most of the world’s money is in the hands of people do not have much of a problem with the currency available to them.
Blockchain as identity. Digital technology has a long track record of destroying trust relationships and replacing them with technical fixes. Westerners today combine a digital system of phone, facebook, and email with an analog system of government identification, banks, and credit cards. This works fine, and despite the complexity the redundancy seems to guard identity. Blockchain needs a proposition 10x better to take off.
Blockchain as stock. The latest ICO craze demonstrates why this is the closest Blockchain yet comes to solving a big, broad problem. The regulatory environment surrounding IPOs has already made Private Equity and Venture Capital attractive to many companies and investors, indicating opportunity for an IPO alternative. The first target market is a financially and legally sophisticated niche, but the masses are primed for crowdfunding and people are on the hunt for yield.
To take off, Blockchain must be used to solve a problem that a lot of people have, in a way 10x better than the next alternative, that is a step toward more and bigger problems. Right now we’re just trying to think of it as fiat currency without a nation-state.
The Magic Of Markets Is Price
What’s fascinating to me about markets is that so many different variables are all boiled down to one simple price. What problems can the new technology solve? What business models can seize those opportunities? Which company will successfully implement those business models? The many questions and their many, many potential answers are all played out over one number: price.
Which cryptocurrency has a cohesive strategy for success, a plan to build up organizationally and culturally?
Which cryptocurrency has a killer app, something that solves a big problem 10x better than the next alternative?
Which cryptocurrency has a compelling value proposition for the masses, reaching beyond enthusiastic niches?
The current price of the crypto market can be interpreted as the probability that one or more of the coins we already have will put these three together, times the value of success. Interpreted that way, market prices imply that there is likely a huge opportunity but the who, how, and when of successful execution are radically uncertain.
To think back to our tech bubble in this analogy, who are our WebVan and AOL? Who are our Paypal and Amazon? Who will be our Google and Facebook?
In the tech bubble everyone was right about the potential; the volatile market conversation was a negotiation about realizing that potential, a negotiation about execution. Blockchain has name recognition and a massive network of well-resourced devotees, so once somebody puts it all together, it can spread rapidly. But which problems will it solve, which questions will it answer? And what will those answers look like: Who, how, and when?