No market has been fluctuating as much the last couple of years as the market of cryptocurrencies. This year started off strong, with the highest value ever reported in January 2018, but not long here after the market collapsed with an all-time low in April this year. A small rise in May was directly followed by a market-wide descent. The key question: is investing in blockchain technology – given the recent insecurities – a wise decision? Entrepreneurs and blockchain-investors Egbert-Jan de Vries and Peter Reitsma from the Crypto Index Fonds map out the current state of the blockchain technology and shed a light on the future.
The course of blockchain: deep dive from big top
The blockchain market value and crypto asset prices are highly dependent on the market sentiment.
The mood swing earlier this year caused a confidence breakdown in the technology. As with any other market, this reflects on the overall market rate. Private investors see their money disappear, and also professional crypto-investment companies experience the drastic consequences of this downward spiral.
Investing in different cryptocurrencies
Looking at the performances of six similar crypto-investment companies in 2018, shown results are unambiguous. Rates are going down. Despite some very small differences, every investment product is declining in value (figure 1 and 2). Will the market be able to recover?
Figure 1: Performances from December 2017 to 1 October 2018
The original potential of blockchain remains the same
The Gartner Hype Cycle focusses on technologies that will deliver a high degree of competitive advantage over the next decade and predicts their developments. All new techniques practically go through the same stages of adoption, depending on the human psyche and market sentiment (figure 3). The introduction of the internet is a great example: at first, we noticed an enormous boost caused by faith in the new technology, followed by a decrease when these expectations could not be fulfilled. When later it appeared that the internet did indeed meet up to the expectations, the value of the technology increased again. Blockchain will most likely follow the same path.
Looking back, while keeping the Hype Cycle in mind, we can state that the value of the blockchain technology was overrated at the beginning of this year. It took too much of an advance in the future. The expected impact of the blockchain technology at the introduction that was expressed in trade-prices of cryptocurrencies was in fact too far ahead of its actual economic value. This value is still very limited. Blockchain has entered the second phase (trough of disillusionment), the drop. On to the third phase!
“We tend to overestimate the effect of a technology in the short run and
underestimate the effect in the long run.”
Roy Amara, Amerikaanse wetenschapper en futuroloog.
No false promises
Sooner or later blockchain will reach this last phase (slope of enlightenment until the plateau of productivity). The technological possibilities and new ways of collaboration that were promised when blockchain was first introduced are not all of a sudden untrue. Blockchain and its applications need to be developed further, as well as the business models and the ways of determining the value of blockchain. Hereafter, the rate is expected to – just as the introduction of the internet – go up again and continue to stay there.
The key question
Is investing in blockchain the right choice: yes or no? To answer this question the first thing we need to do is put our emotions aside and keep our focus on the long term. Besides, the choice of a crypto investment product is just as important for success. There’s no way to make a statement about the course of individual cryptocurrencies such as Bitcoin or Ethereum and investing in one or a few cryptocurrencies is risky and unsure. However, one thing we know for sure: blockchain technology has a bright future. Choosing for a market-wide exposure and investing with a mix of different crypto assets, will lead to risk spreading and gives investors the chance to take advantage of the development and growth of the technology. After falling and rising and ups and downs, investing in the blockchain technology will pay off.
Guest post by entrepreneurs and investors Egbert-Jan de Vries and Peter Reitsma.
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