Michael Terpin co-founded BitAngels, a distributed entrepreneur and investor group, and runs Transform Group, a PR and strategic marketing advisory firm focusing on the blockchain sector.
In this CoinDesk 2016 in Review special feature, Terpin breaks down the blockchain industry into three sectors, issuing his predictions for each in the coming year.
Looking back, the blockchain sector had its fair share of victories, defeats and controversies in 2016.
But it appears poised for continued growth in 2017. Sure, there's still the chance of a catastrophic events (these have happened more than a few times in the industry's short lifetime), but just as likely is parabolic growth.
So, how can investors prepare to spot patterns in the developing industry?
First, understand the basics. I divide the industry into three categories (bitcoin, other public blockchains and consortiums, and private ledgers).
That said, here are my predictions for how the tech will advance in these areas in the year ahead.
When David Johnston and I co-founded BitAngels more than three-and-a-half years ago, bitcoin was still very much a novelty among traditional investors. It had just gone through one of its most tumultuous whipsaw rides, starting 2013 at $13 before skyrocketing to $233, then dropping quickly to $50.
By the time we started, the price had recovered to $120, and there was excitement in the air that by year's end the price would rebound. One investor who attended our first meeting, Vinny Lingham (now CEO of blockchain startup Civic), made the outrageous prediction bitcoin would hit $1,000 by December. He was right.
Flash forward to December 2016, and there has been another breathless run-up, one that prompts comparisons to 2013.
Long-time investors in bitcoin have seen this all before, but from my perspective, the ecosystem is much improved.
While the pure supply-demand equilibrium that generally causes market manias still applies, gone is the reliance on one exchange, Mt Gox. Exaggerated pricing is far less likely today with dozens of independent exchanges backed by VCs and compliant with regulators.
The big trends of 2017 from my perspective in bitcoin will be the following:
1. The 1% will finally get in on the action
Knowledgable family offices invested in bitcoin as early as 2013, when Barry Silbert offered his Bitcoin Investment Trust vehicle for accredited investors (when the price of bitcoin was barely over $100).
This vehicle went public as GBTC, which isn't technically an ETF, but it does rely upon its underlying holdings of bitcoin and, in fact, trades at a premium to them (one share is backed by 0.1 BTC).
SeekingAlpha called it the "dumb investment of the week" in March. Both the price of bitcoin and GBTC have more than doubled since.
2.The first mainstream bitcoin ETF will come to market
I predicted on a panel in January, 2014, that one of the three things bitcoin needed to move into the mainstream was an ETF on NASDAQ or the New York Stock Exchange (NYSE), so any stock investor could profit as easily as they can buy a gold or silver ETF. (The other two needs I listed, bitcoin debit cards and a bitcoin exchange that can be used in all 50 states, both took place within that year).
It now appears likely that the Winklevoss Bitcoin Trust (COIN) will finally be listed on NASDAQ this year.
3. The price will go higher in direct correlation to the war on cash
India, Venezuela, now Pakistan – as each new country's government made its larger bills (in the case of India, 'large' is only $7 and it's much less in Venezuela), the citizenry looks for ways to put cash into hard assets: gold, silver, and bitcoin (the only hard asset that’s also digital).
While not as extreme as banning cash, clamping down on moving funds out of the country (China) and hyperinflation (Venezuela and much of Africa) leaves citizens without the ability to buy euros or USD looking for anything that will depreciate slower than its currency.
For a while in Argentina, people bought stereo equipment as a store of value.
Unlike used consumer products, however, bitcoin actually has the ability to appreciate and is a much more liquid asset than a DVD player.
4. Bitcoin will continue to climb
My personal prediction is that bitcoin will reach $2,200 by the end of 2017, but it could be higher if certain currencies collapse and there is any significant move toward bitcoin in those markets; lower if those markets stabilize.
I see very few scenarios where the price is lower 12 months from now than it is today.
There has been some confusion among some investors and business users about the difference between public and private blockchains.
Ethereum, for example, has been referred to as a blockchain solution without the baggage and regulation of bitcoin – yet as a public blockchain (ie: one that is not privately controlled and that has an asset value that typically trades on public exchanges), it faces the exact same regulatory issues that bitcoin does as a virtual currency (KYC, AML, MTL, etc).
Only privately held software that does not trade as a commodity anywhere is exempt, but that category faces other issues, such as security and trust.
Here are the trends I see in public blockchains this year:
1. ICOs will continue, increase and diversify
Token crowdsales (also referred to by everyone but attorneys as 'initial coin offerings' or ICOs) first began about two years after the initial 'altcoins' appeared. (BitAngels was the largest investor in the original ICO, Mastercoin (now called OMNI), which raised $600,000 in August, 2013).
Ethereum, in June, 2014, was the first big winner in the ICO marketplace, both in terms of funds raised ($18m, when bitcoin was $600) and appreciation (peaking at nearly 70x the ICO price of 0.0005 BTC).
Maidsafe, Factom and Storj also had successful ICOs in 2014. Augur was one of the few big winners to do an ICO in 2015 (a down year for both bitcoin and ICOs).
2016 saw large amounts raised for The DAO (more on that in the next bullet point), Waves, Lisk, FirstBlood, Golem Network and Iconomi. A few of these, but not most, had nice returns over the ICO (Lisk and Augur had the best appreciation from their ICOs when they started trading in 2016).
This momentum will continue and accelerate as long as:
- The average "serious" ICO receives close to the minimums it sets out to raise (which can be complicated by the sheer number of ICOs)
- ICOs remain a quicker path to funding seed-stage innovation than traditional angel investors
- Regulators, particularly in the US, keep their 'watchful waiting' approach.
As we enter 2017, there are at least 35 pending or current projects listed on ICO-List.com, and I could envision there being at least 200 ICOs launched in 2017 – once again raising a total in the low nine figures and with the top 10 taking the bulk of the funds.
2. Innovation will be offset by caution
Fear and greed are the two main drivers of any market. With The DAO's infamous ICO, an unbelievable $160m (nearly 9x the amount raised by ethereum) was stoked by FOMO and a too-good-to-be-true narrative that one could take one's money back.
Then came the hack, which led to the split, and not only did The DAO die before its first deal, but ethereum itself still has never quite recovered.
In 2017, there will be a handful of exciting, innovative uses of public blockchains that use the ICO process to raise awareness and funding.
Some will succeed in fundraising, but the bar will be set higher, with a premium placed on teams with track records of the founders (no more anonymous developers).
3. Not every blockchain will raise through an ICO
Zcash became the year’s most frenzied listing, yet it was funded by private sources and continues to have mining as a large part of its distribution strategy. Other leading privacy coins, Dash and Monero, operated similarly when they launched.
Steem, a cryptocurrency tied to a social media network, also became a top 10 trading token without an ICO in 2016.
Private blockchains will also continue to evolve in 2017, both as part of consortia like the Linux Foundation's HyperLedger, as well as VC-backed private companies targeting regulated industries such as banking, medical, insurance and real estate.
A big question in 2017 will be to what extent any of these private blockchains can succeed given the lack of available talent in the industry. Public blockchains have already recruited small armies of developers to innovate on already popular code.
It’s my opinion that angel investors will typically stay away from private blockchains (other than funds that are prohibited in investing in public blockchains) for this reason.
Disclosures: CoinDesk is a subsidiary of Digital Currency Group. Grayscale Investments, which sponsors the Bitcoin Investment Trust, is also a subsidiary. Additionally, Michael Terpin is an investor in digital currencies and assets including Augur, bitcoin, dash, ether, Factom, Lisk, MaidSafe, monero, Omni, Storj and Waves.
Have an opinion on blockchain in 2016? A prediction for 2017? Email firstname.lastname@example.org to learn how you can contribute to our series.
Edge of cliff image via Shutterstock
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