From Then to Now
This Time It’s Different
Those of us who have been working in the blockchain industry for years have lived through many ups and downs. In fact, we often label these swings as ‘cycles’ denoting how cryptoasset prices and blockchain investment tend to swing between bull and bear markets. This is not too dissimilar to other growth technology asset classes.
Since launching the Blockchain Coinvestors’ strategy to give diversified access to early stage blockchain investments, we’ve witnessed three complete cycles, where prices and sentiment rose steadily before receding, yet following a consistent path upward. What was clear in those cycles was that blockchain had immense potential, and the technological innovation was moving at a rapid pace. Specifically, investment flowed to new infrastructure and applications, as we saw new protocols launch, decentralized finance take-off, and Bitcoin solidify its place as a global investible asset class.
However, in May 2021 the wind came out of the sails, as stubborn inflation led to an unexpected pivot in monetary policy from the Federal Reserve. This monetary policy shift concluded in the fastest rate tightening cycle ever witnessed in the US markets. As a result, risk-on assets, such a high growth technology and digital assets went into a difficult bear market. The effects were most infamously evident in the collapse of FTX.
Yet here we are, just 15 months after FTX, and the digital asset industry has recovered to all time highs in terms of prices and sentiment. The bad actors have been washed out. The high exuberant valuations have rationalized. Capital is flowing into the sector. In fact, most analysts believe we are likely on the precipice of another bull run.
But this time the bull market will be different.
In this week’s Letter from London, we want to explain why we believe this cycle is different from previous cycles in two incredibly important ways:
Multiple Real World Use Cases Generating Billions in Revenue
Wall Street Racing to Embrace and Adopt Blockchain Technology.
Now, not only does the technology continue to progress, but there are many real-world use cases in action today generating billions in revenue and the world’s largest financial institutions are moving quickly to adopt the technology.
Oh, and Bitcoin has further solidified itself as one of the world’s premier investible asset classes.
Why this Bull Market is Different
Difference 1: Real World Use-Cases
We’ve written a lot over the past year about many of the exciting real world use cases benefiting consumers around the world that utilize blockchain technology. Rather than repost that here, we thought we would point you to a recent post by Brian Armstrong, CEO of Coinbase, who detailed a few of the use cases he is seeing in the market:
Digitizing the Dollar: Dollar-backed "stablecoins" like USDC, now over $100 billion in adoption, meet the global demand for the U.S. dollar, especially significant in the face of China's digital Yuan. The largest stablecoin provider is now more profitable than Goldman Sachs.
Efficient Global Payments: Blockchain improvements enable fast, low-cost transactions worldwide. USDC transactions, cheaper and quicker than traditional methods, are approaching a $9 trillion annual volume, surpassing major credit card companies.
NFTs for Creatives: NFTs have amassed over $62 billion in sales, offering artists direct fan engagement and fair compensation, cutting out costly intermediaries.
Decentralized Social Media: In its early stages, Decentralized Social Media allows users to own their data and prevents censorship. It enables various interfaces to use a shared social media post dataset, combating AI-generated fake content.
Previous cycles reflected the sentiment of blockchain’s potential. This cycle will reflect that potential but also builds upon the demonstrable fact that blockchain technology is disrupting several industries. The proof is in the pudding. Billions of revenues are being generated and market share is being taken.
Difference 2: Wall Street’s Embrace
The rise of digital assets is a unique financial case, in that retail investors invested ahead of institutional investors—a reversal of the usual pattern. Initially, as Bitcoin's value soared from $1 to $60,000, institutional investments were minimal. Bitcoin's decentralized and permissionlesss nature allowed individual retail investors worldwide to participate early, inverting the typical scenario where institutional 'smart money' leads and retail 'dumb money' follows.
However, the current investment cycle is witnessing a dramatic shift. Wall Street banks and financial institutions are now rapidly entering the digital asset space, striving to gain exposure to this burgeoning asset class. A prime example of this trend is BlackRock’s venture into blockchain technology.
BlackRock, the world’s largest asset manager, has recently partnered with digital-asset specialist Securitize to launch the "BlackRock USD Institutional Digital Liquidity Fund Ltd.," as disclosed in a SEC filing on March 14. This initiative marks a significant move by a major financial player into blockchain investment, focusing on the promising area of tokenization—a specialty of Securitize.
Full Disclosure: Securitize is a portfolio company of Blockchain Coinvestors
Although details in the filing are limited, Securitize's experience in managing similar tokenized funds with firms like KKR and Hamilton Lane lends credibility to this project.
Tokenization—the conversion of securities and financial products into digital assets on the blockchain—is increasingly recognized as a practical and influential application of blockchain technology. Following in the footsteps of financial heavyweights like Brevan Howard and KKR, BlackRock's entry is a significant endorsement of this trend. Citigroup's forecast that the tokenization market could expand to $5 trillion by 2030 underscores the anticipated growth and impact of this sector.
The View from London: A New Kind of Bull Market
Digital assets, much like other emerging asset classes, have experienced their share of ups and downs, fluctuating between bull and bear markets. In the past, the sector was often perceived as merely "selling the dream".
We stand at the precipice of another bull market, but this time, it is distinctively different.
What sets this bull market apart is not just the underlying tangible use cases, but also the significant involvement of leading financial institutions—a topic we've frequently discussed. A prime example of this institutional embrace is BlackRock's deep dive into the digital asset sector. Their recent endeavors include the launch of a Bitcoin spot ETF, which has become the most successful ETF debut to date, and a groundbreaking $100 billion tokenized fund in collaboration with our portfolio company, Securitize.
This increasing institutional acceptance builds on the massive number of individual investors already invested; over 50 million Americans and 400 million people worldwide have bought into cryptocurrency. Moreover, according to reliable third-party data, illicit activity comprises less than 0.5% of all crypto transactions.
As early-stage investors, we continually aim to position ourselves ahead of significant market trends. We believe now is the time to allocate ahead of powerful tailwinds.
If you’re interested in this industry but don’t know how to appropriately allocate, we invite you to join us for our premier annual event, "BlockTalk." We’re hosting multiple panels of leading industry experts – like executives from Coinbase, Securitize, and others. They will share valuable insights on the most effective strategies for investing in this evolving asset class. Don't miss this opportunity to gain insider perspectives and navigate the digital asset landscape with confidence.
Finally, our new Fund of Funds (Fund VII) provides global, diversified exposure to early stage blockchain venture investments from the leading blockchain venture firms and is open for commitments now. Please reach out to ir@blockchaincoinvestors.com if you have any questions.
Thanks for reading,
Mitchell Mechigian
Partner, London
About Blockchain Coinvestors
Blockchain Coinvestors is the best way to invest in blockchain businesses. Our vision is that digital monies, commodities, and assets are inevitable and all of the world’s financial infrastructure must be upgraded. Our mission is to provide broad coverage of early stage blockchain investments and access to emerging blockchain unicorns. Blockchain Coinvestors’ investment strategies are now in their 10th year and are backed by 400+ investors globally. To date we have invested in 40+ pure play blockchain venture capital funds in the Americas, Asia, and Europe and in a combined portfolio of 1000+ blockchain companies and projects including 80+ blockchain unicorns. Blockchain Coinvestors’ first fund of funds ranks in the top decile amongst all funds in its category on both Pitchbook and Preqin. Headquartered in San Francisco with a presence in London, New York, Grand Cayman, Zug and Zurich, the alternative investment management firm was co-founded by Alison Davis and Matthew Le Merle.
“The best way to invest in blockchain businesses”