Almost exactly one year ago I made 14 predictions about how the cryptocurrency market would change in 2018. This year, I want to start by recapping how my predictions turned out, and then make a fresh set of 2019 calls.
In reviewing my 2018 predictions, I give myself a score of 79%: 11 of my 14 predictions turned out to be correct. Here they are:
1) Bitcoin’s Market Share Will Grow as a Percentage of the Overall Market: Mostly correct. If you count from Jan. 1, 2018, then I was absolutely correct—BTC was 35% of the total crypto market then, and is now 55% of it. BTC is closer to flat when you look December to December, but any way you slice it, bitcoin has been relatively strong compared to the broader market. Not only has it increased its share of the market, I would argue it has increased its mindshare relative to other crypto-projects and tokens as well.
2) Limited Consumer Use of Cryptocurrencies: Correct. This was an easy prediction to make. As we near the end of 2018, we are no closer to real consumer use in the market of crypto for anything other than “store of value” in the case of bitcoin, and pure speculation on the trading direction of coins.
3) Big Steps Forward in Distributed Ledgers of Account: I was a little too optimistic, but still correct. There is one application of a distributed “record of accounts” I believe in, which is the “tokenization” of real world assets.There is another potential application, which I don’t believe as strongly, which is around enterprise supply chain–oriented blockchains. Neither of these applications are being used by anyone yet in any meaningful way. But a lot of the pieces have started to come together this year that should open up the story in a practical sense for next year.
4) Relative Decline of Distributed Computer Narrative: Correct. I have struggled with Ethereum's positioning as a general-use, distributed, Turing complete “computer.” It has never made sense to me why you want a general purpose “computer” that is slower and less efficient than purpose-built blockchains for solving specific trust issues. The fervor over blockchains and crypto offering a solution as a “general computing platform” has thankfully subsided. Ethereum, which was the main project promoting this narrative, has fallen from almost $1,400 at its peak to $80.
5) New Speculators Will Drive Up ‘Penny-Coin’ Volatility: Somewhat correct. The extreme volatility in crazy ICOs like Dentacoin, etc., mostly happened in 2017 and subsided throughout 2018. There is still some crazy long-tail activity, but I would be the first to admit that after my December post, the crypto markets moved even faster than I expected. The wild speculation around long-tail coins quickly started to collapse in the early days of 2018, whereas I expected it to take longer.
6) More Healthy Forking of the Largest Projects: There certainly was more forking of the large projects like bitcoin. I believe that forks can be quite productive and healthy, allowing a path for differing parties to take. There are healthy divorces, and there certainly can be healthy forks. I don’t have great examples in 2018 of clearly “healthy” forks that produced good outcomes for everyone—or nearly everyone. But the forking has continued and has served as an efficient escape hatch for certain main-line projects, and as a pattern for real innovation.
7) Forks Lead to a Knife Fight: Bitcoin Cash’s highly contentious recent fork certainly fits the bill here. I would argue that was a clear knife fight, because not all divorces are amicable.
8) Decline of ICOs: Again, with 20/20 hindsight this might seem like an easy call to make. The first open-ended ICO party that kicked off in 2017 came to an abrupt halt. More projects are once again raising capital on more traditional equity models, with the idea of a responsible ICO or other issuance on the horizon. ICOs in my mind will keep happening. They make good sense in some cases—but the number of them has certainly declined from the initial mania of 2017.
9) Rise of Privacy Coins and Stable Coins: We have seen the launch of many stable coins this year, and the privacy narrative has never been stronger. Looking back on my prediction, I would say that the stable coin movement has gone further and faster than I expected, and the privacy narrative has gone slower. It makes sense that one moved faster than the other. True stability might be technically and philosophically just as hard to achieve as privacy. But it is easy to launch a nominally stable coin backed in some form by dollars, where privacy takes serious engineering.
One possibly unintended consequence of the rise of mostly stable coins is that they have offered an alternative to bitcoin for people who have moved out of alt-coins but still want to be in the crypto ecosystem. That has weakened the narrative that flight from long-tail coins would support bitcoin itself.
10) Pick-and-Shovel Business Unicorns: Coinbase clearly has achieved this status and then some. There are other companies out there that are doing well, but the drop in prices across the market and general resulting malaise has delayed this somewhat. Great pick-and-shovel businesses are still coming—doing everything from managing nodes to investor KYC and insurance, but they will be a bit slower than I expected a year ago.
11) Venture Capital at the Party but Limited “Dancing”: Correct. Almost every generalist venture capital firm I know is now set up to look at crypto deals. They have revised their Limited Partnership Agreements and have team members knowledgeable enough to play. Most, however, are still very limited in what they are actually doing in the space (with some clear exceptions). There are two things needed to break this stalemate. First, people have to come up with valuation frameworks. Right now, almost no one knows what to pay for anything. Second, consumer use-cases would be helpful. There are VCs who are willing to go into protocols, but most generalist VCs aren’t very comfortable with that level of abstraction and risk.
12) Nation States Mining Crypto by End of Year: This was intentionally provocative. To the best of public knowledge, this did not happen. But I still believe that if we look back in 10–20 years, the answer is that likely some countries will be quietly and privately mining. There is just no sense in their telling anyone they are (at least not yet).
13) Early Global Signs of Impact: Nope. Again, probably wishful thinking, but I think it is hard to argue that crypto has had any meaningful global impact, yet.
14) Jamie Dimon Will Not Buy Bitcoin: Probably true. Hard to know. I was happy to poke a little fun at Jamie in my children’s book “B is for Bitcoin” this year. His firm might be buying, but my understanding is that he remains a skeptic.
With 2018 to bed, I feel obligated to make a few predictions about 2019. Since this is a more circumspect time, I will limit myself to just a few key predictions.
1) We Will See the First Meaningful Corporate “Airdrops.” There are quite a number of large social companies—from Telegram to Kakao—that have been public about their ambitions in the crypto space. Facebook has also announced it has a team exploring the technology. This isn’t a new idea, but the benefits are too obvious to ignore. It is too tantalizing for consumer internet companies to not try to move into digital financial products—as WeChat has done in China, outside of crypto. The benefits of coordinating developer ecosystems are also too clear to pass up.
At the same time, crypto offers many companies another shot at building a trusted platform. The first few generations of internet platforms have largely failed because, since they have been controlled by centralized players, they have been hard for developers to trust and deeply embrace. Crypto offers the next “shot” at real platforms by boosting trust in development communities by removing the central power of any one service (at least to a degree).
Time will tell exactly what these end up looking like. I would be shocked if what Telegram ends up launching matches their insanely ambitious white paper. I am also sure that there will be added stress and second-guessing by some companies launching into a clearly dampened market. But I bet at least a few of these moments will happen next year, and I do think they will meaningfully affect the market.
2) Asset Token Offerings Will Be Big. I strongly believe that physical assets—ranging from real estate to sports teams—will eventually make their way into the blockchain universe. We live in a strange time where almost everyone in the developed world has access to debt financing, but very few people have access to issuing equity as a form of finance. Almost everyone can borrow money, but almost no one—outside of coastal tech startups and enormous companies—can sell equity. As many people recognize, this is an enormous missed opportunity, and one which things like Regulation A alone will not fix.
There are structural reasons why traditional exchanges won’t support a very long tail of equity financing, but crypto can and will. Expect this upcoming year a lot of real estate, and some things like e-sports teams, to offer an issuance. Don’t expect to be able to buy shares in your favorite sports teams, or in people via ISAs (personal income sharing agreements) just yet.
3) Bitcoin’s Price Will Be Flat-ish. For bitcoin to have a meaningful up year, there has to be a major propellant. It is possible that corporate airdrops will lead to many new consumers having an easy on-ramp to crypto and wanting to diversify away from corporate-sponsored chains and into bitcoin. It is also possible, but unlikely, that demand for asset tokens will be robust and drive people to buy into crypto broadly (which means buying bitcoin). I don’t think, however, that either of those will massively push up bitcoin’s price. If anything, it is possible that with the general malaise in the crypto markets it will even drop somewhat more. I believe in the bitcoin-as-store-of-value story long-term, but calling the markets month to month or even year to year is clearly a fool’s game.
4) Further Decline of Long-Tail Coins. This is for two reasons. First and foremost, there just is no point to most of them, and I don’t think that trading can keep things alive. Second, the few publicly traded projects that are “real” and have some momentum today will likely be rendered obsolete by another generation of currently unreleased protocols that will be coming out. As a bunch of the generation three protocols come out, everything but the most established projects is likely going to have to reset.
5) Much More Acceptance of Pragmatic, Over Pure, Solutions. I am impressed with Stellar. Many purists hate Ripple, but it is running a reasonable gameplan. Both of these projects represent the best of pragmatic decentralization in my mind, where not everything is fully decentralized, but they take advantage of ideas from crypto to increase trust in their networks. I think that in the coming year there will be a lot more pragmatism about launching immutable ledgers that are shared among parties but not necessarily fully decentralized like Bitcoin. Amazon’s announcements around AWS supporting crypto-like databases is a great example of the crypto story getting adopted in a pragmatic way into the broader world.
6) Political Realization of the Importance of Crypto for Freedom. For me, there are a few short-term reasons that I believe crypto is important. Things like tokenization of assets to make equity financing far more accessible in our debt-laden world makes good short-term sense and is of importance. That said, the real long-term point of crypto is freedom of speech and completing the to-date incomplete internet project.
I think it will be a relatively demure year, with a pragmatic push towards adopting the language and some of the value of crypto-projects. But I expect that as companies increase policing of content and limiting rights on their platforms, the political pressure towards truly free platforms will increase.
Conclusion
I feel good about my 2018 predictions. At the time I made them, I was a bit caught up in the rise of coin prices and fell into the trap of thinking things would move faster and more positively than they did. But I don’t think I was massively off. And my personal belief in the importance long-term of the ecosystem has not shifted.
I look forward to seeing how my 2019 predictions fare in a year!