It’s been a busy few months for all things blockchain. (If you’re interested in learning more about how blockchain works, I suggest you read my article to quickly get up to speed.)
CoinDesk captures the key trends and events with its just-issued “State of Blockchain Q2 2017” report. Click here to read the full 115-page report, which has dozens of charts and graphs.
For a quicker review, read my commentary below on some of the report’s most noteworthy findings.
600%-Plus Returns, and It’s Only September
This hyperbolic rise is not bitcoin-driven. Bitcoin has “only” risen by 320%. Earlier in the year, its share of the total cryptocurrency market was around 80%. Now it’s 40%.
It’s the other currencies – like Ripple, Litecoin and Ethereum – that have ignited cryptocurrency’s price explosion.
Historically, cryptocurrency prices have featured large swings in both directions. It’s obvious we’re in a big upswing right now, with Irma-like tailwinds pushing prices higher and higher.
It’s also obvious a correction is coming.
A Correction: How Soon? How Much? Everybody Has an Opinion…
A majority (58%) of those surveyed in the report believe we’re in a bubble, while 30% think we’re not. These are “blockchain enthusiasts” being surveyed, so there’s a bias toward optimism at play here.
A slew of ICOs is coming down the pike this month and next. They could very well drive prices much higher… or restrictions out of China could initiate a correction in the very near future.
Look, I’m no fortune-teller. Nobody knows how much longer this current climb will continue. Nor does anybody know what the extent of the correction will be.
But here’s the thing: It’s not something I’m losing sleep over. The cryptocurrency market will correct and then begin a new climb that will reach new highs. That’s the historic pattern. Nothing changes.
I’m not nearly smart enough to time the peak or the bottom. I’m keeping it real simple. As far as I’m concerned, the trend is your friend, and this trend is still pointing upward. So I’ll continue to invest.
And, post-correction, I’ll make sure to have cash on hand to take advantage of some nice price points as the market begins its next climb up the charts.
We should all remember this is no silly fad. Some of the most successful venture capital firms – including Andreessen Horowitz, DFJ, Sequoia Capital and Union Square Ventures – have made large investments in blockchain and digital currency companies.
Hundreds of potentially transformative new blockchain technologies are being developed, but perhaps none are generating as much excitement as Ethereum’s “smart contract” blockchain technology.
Don’t Ignore Ethereum
It’s hard to ignore Ethereum’s 3,800% price jump since the beginning of 2017. This period also saw an explosion of ether usage. (Ether is the currency that runs the Ethereum network.)
Transactions involving ether coins have come significantly closer to bitcoin transaction volume, but ether still has a ways to go. Bitcoin averages 291,000 transactions a day.
A big reason for ether’s rise? The explosion of recent ICOs, many of which raised money using the ether currency.
ICO Funding Starting to Outpace VC Firms
ICO funding in the second quarter easily exceeded money from venture capital firms. But look at the above chart (on the right) and you’ll see that VC funding still dominates blockchain fundraising.
ICOs can be volatile. And they’re not easy to participate in. But without them, regular everyday investors would be completely shut out of investing this early in exciting blockchain companies.
ICOs are like startup crowdfunding. Both allow you to invest very early. Likewise, in both cases, most of these young companies will fail. But the ones that get over the hump and put themselves in a position to experience hypergrowth?
They can hand – and already are handing – investors unbelievable returns.
But What About the Government?
The SEC will impose regulations. It’s just a matter of time.
The question is will they be fair or – and this is my great fear – overly restrictive?
If the regulations are balanced and fair, it would be a good thing that would provide much-needed regulatory certainty. If not…
Then the U.S. government would be putting itself on the wrong side of history, clamping down on capital investment flows to technologies that could grow into massive businesses and wealth generators.
In July, the SEC ruled that the Decentralized Autonomous Organization’s coins were securities and thus subject to the agency’s regulation. But the SEC offered no “bright-line” test as to what constitutes a security.
The SEC said each ICO must be considered individually.
So we’re waiting for more guidance from the government.
If this follows the same path as crowdfunding regulations, the government will be cautious, but it’ll allow ICOs to continue under certain conditions and as long as certain rules are followed.
It’s a big test for the government. And it needs to get it right.
Founder, Early Investing
P.S. We’re still in the early days of blockchain and cryptocurrency. So if you haven’t invested yet, don’t worry. Time is on your side.
To get started, check out our top four cryptocurrency picks and a complete guide to investing in this space through our First Stage Investor research service. See our new video about the service here.