TOO EARLY OR TOO LATE FOR CRYPTO PARTY
From USD 20,000 in 2017, Bitcoin has come a long way in the last three years. It went as low as $4031 in March last year when it was assumed that Bitcoin was dead and the market capitalization of the entire crypto ecosystem has dropped from USD 700 Bn to USD 354 Bn. Even though many of the top 10 projects of 2017 boom and burst have lost their luster, there are many projects launched at that time who are now worth more than 10x and some even 50x.
Many people are still speculative about the whole cryptocurrency ecosystem and skeptical whether it too late to enter the market or wait on the sideline and watch how things settle for the next few years. Considering early projects are 50% — 60% down from their ATH and still unstable and because of hacks, scams and rising technologies such as Defi and NFTs are still highly volatile.
Since 2018, after the bubble burst, more than 50 projects have been launched which have given a high return. Is it too late to invest in crypto projects then?
Many projects launched in 2017 have given high returns (even after considering most of these projects are 40%-60% down from its ATH in Aug’20). After the bubble burst of early 2018, more than 50 projects have been launched which have given a high return. Is it too late to invest in crypto projects then?
In the last three years, the paradigm of the crypto economy has changed a lot. Only five coins that were in the top 10 in 2017 are still there. If we talk about the top 25 coins, most of the coins that were featured in the top 25 in 2017 have been pushed below by new projects. Many can conclude from the above analogy that the Industry is still in its nascent stage and investing in it is not a good idea. Is it too early to invest in crypto projects then?
Blockchain and Cryptocurrencies closely resemble what the Internet and Dotcom were in the late 1990s.
The best possible way to understand the case of the crypto dilemma is to compare it with the rise and fall of DotCom in 2000. Blockchain and Cryptocurrencies closely resemble what the Internet and Dotcom were in the late 1990s. Just like cryptocurrencies and blockchain, in 1990, people were faintly familiar with the internet and dot-com companies.
No one in the 1990s could have thought that books could be ordered online or they can buy groceries online and get them delivered to their houses. But now, these things are as common as taking bathing every morning.
In the 1990s when, real estate, oil and gas, and banking were the booming sector no one has heard about the ‘internet’. People doubted if it was even real. Let’s ask ourselves if given a chance how many of us would have invested in startups mentioned in the below table:
Not many of us would have been comfortable at that time. But now, in hindsight, we all wish it could have been part of that crazy and world-changing ride. However, this is only half part of the dotcom story. Though we could have wanted to invest in the above-mentioned projects, we also feel lucky that we didn’t invest in the below-mentioned projects.
Though all the above projects were pioneers in their field and their counterparts in today’s time are doing great, these projects failed miserably. Facebook did its IPO in 2012 and is one of the most successful companies and investment for its investors. BigBasket is providing groceries to more than 4 million customers in India. Amazon has outgrown from an online bookstore to ‘the everything store’. Every country in this world has successful online businesses in all the fields in which the above startups failed.
The investment appetite of an investor in a nascent sector should not just depend on his risk appetite but also upon his keenness to understand the sector and vision of how the sector will transform in the future.
So, how do we decide if the late 1990s was the right time to invest in Dotcom companies or post-2000 was late to invest in those companies? Or, taking the analogy of dotcom how do we decide if this is the right time to invest in crypto projects or we are too late to the party or we need to wait and watch?
It is a common and wise saying that the investment of an investor should depend on his risk-taking abilities. Add one more point to this saying — ‘The investment appetite of an investor in a nascent sector should not just depend on his risk appetite but also upon his keenness to understand the sector and vision to how the sector will transform in the future.’
Kotler said there are five categories of innovation adopters: Innovators, Early Adopters, Early Majority, Late Majority, and Laggards. The same is true with investors as well.
When it comes to emerging markets, no category is better than the other. Bill Gates and Jeff Bezos ( Innovators) became riches people but at the same time, People who waited for the dot-com industry to unfold itself and invested in Google, Netflix, and Netgear ( early adopters) made tons of money as well. Similarly, people who waited for the hype dotcom to settle and invested in Alibaba or Facebook became a millionaire as well.
The Crypto industry is still in its nascent phase, though the first Bitcoin was minted 11 years ago and there are more than 1000 projects with a total market cap of $350 Bn, it is still developing. 2017 was the year of first-generation crypto assets that were challenging the traditional financial assets. 2018–19 was the year of second-generation projects that were spreading blockchain to a different sector like — gaming, advertising, IoT, supply chain, etc. 2020 we saw a new ecosystem of decentralized finance (Defi) and non-fungible tokens catching momentum.
Innovators and Early Adopters have already invested in all these emerging sub-markets of the crypto ecosystem. It doesn’t mean that Late Majority and Laggards should invest in these too. According to some people, Blockchain and cryptocurrencies are going to change how we perceive the world in the same way the Internet changed the world in the 1990s. There are ample opportunities in this industry to invest right now and there will be more in the coming future.
If your risk appetite is low keep catching fish in tried and test the water. If you want to experiment and have some fun explore the new boundaries, but mind you, someday you might come face to face with the sharks as well. Be prepared if it!
