Economist Alchin said that economics does not care whether people are rational or not, and whether people can survive. Further, it is actually a condition of concern for survival.
This sentence gives me a deep feeling. After a decade of barbaric growth, the digital currency market has been influenced by most people's impressions of hype, bubbles, and high risks. Everyone has their own opinions on the evaluation of something. I think the core of analysis is not to define what the world should be, but to pay attention to what it is.
Therefore, we first review the main investment logic of the digital currency market in the past ten years, further analyze the thinking caused by each investment theme, and finally discuss one of the possible development trends of the digital money industry in the future.
Digital Money Market Decade Investment Review
Bitcoin investment logic from 2008
Since 2008, there have been numerous articles on investing in Bitcoin logic. I won't go into details here. Only the three main points are listed for review.
1. Currency perspective: From the collapse of the Bretton Woods system to the criticism of Keynesianism, praise the delicate design of the bitcoin deflation mechanism, and then use Hayek’s “currency non-state” as the theoretical pillar of bitcoin to become the mainstream currency. . Recommended reading: "The Bitcoin Standard", and "Cute in Hong Kong" reading notes on this book.
2. Mechanism design perspective: Bitcoin is generated fairly by the mining process. Transfers are not subject to third-party restrictions. Transaction records are always stored on public distributed ledgers, and information is irrevocable and falsified.
Recommended reading: Bitcoin white paper or related science.
3. Network effect perspective: Bitcoin's simple and direct incentive mechanism allows its network effect to expand on a large scale. The world-renowned venture capital company A16Z is a fan of the "network effect" theory. Recommended reading: "Why is bitcoin important? 》by A16Z, 2014.
Bull market brought by Ethereum in 2017
The 2017 Ethereum and Smart Contract concept sparked a crazy bull market, but the analysis of the reasons for this clearly does not have sufficient arguments for analyzing the value of Bitcoin investment. This is largely due to the fact that digital currency believers often recognize that bitcoin is an “asset” and that other digital currencies can only be called “investment themes”. I didn’t find a better word to define the two. I can only explain it briefly. The so-called “asset” here is “ investment products that you are willing to hold for a long time and believe that can bring continuous economic returns ”, and “investment” “Theme” means “ the investment value of the investment product is more reflected in the short-term bubble ”.
The bubble in the market in 2017, personally think it can be summarized as follows:
*[DAO is a concept proposed by Ethereum. The incentive model is similar to traditional option incentives, but more flexible and fair. Its management model relies on smart contracts to run, not relying on the central authority,]
The impact of these three points is actually progressive: driven by price and philosophy, investors invest in Ethereum or other smart contract system projects, in addition to obtaining excess returns, they also have a sense of responsibility for religious ceremonies, each Individuals can participate in their favorite projects and can make it better.
Under the madness of the bull market, the top universities and research institutions and academic big coffees at home and abroad in 2017-2018 have also formed teams to develop higher-performance public chains and carry out large-scale financing. Harmony, Algorand, Oasis Labs, Blockstack, Nervos… are all star projects of that period. But in 2019, these Uranus projects did not perform well, and the market seemed to have lost enthusiasm for this investment theme.
Platform currency broke out in 2019
Between the bulls and bears, investors who were really hurt by the market collapse finally realized that “the public chain is useless.” We have developed so many high-performance public chains that we cannot rely on their technological advantages to build a true ecology. We believe that The DAO model seems to have become a utopia. At this time, the investment theme of “platform coin” became the first reliable target that everyone found after coming out of the ideal country.
The income of the exchange is used to repurchase tokens, which will give investors dividends. At the same time, the tokens have the advantage of having equity–bearing currency functions, used as handling fees, etc., so that the economic system is designed to be so perfect. The digital currency makes most people feel at ease.
For an article detailing the investment logic of platform currency, please refer to the article on behalf of the past : "Brainhole: Reconstructing the Future Significance of the Trinity "Super Carrier" of Commodities, Securities and Currency from BNB.
Since then, the market has returned to the most common business logic – the pursuit of cash flow . Investors are no longer driven by the spirit of the nose: no matter what digital currency, it is a business project itself, we just need to see if you can make money, you can make money to prove that you have the strength to pull.
* Top investment topics such as "STO", "DeFi" and "Web3.0" are not included in the analysis because they do not bring significant financial returns for the time being. The pyramid schemes and fund games that run through the entire history of the currency circle are not included in the analysis.
In-depth analysis of the outbreak of various investment themes
Continuing the evolution of the above investment themes, we are at the moment to recapture these investment themes.
Is the investment logic of Bitcoin confirmed?
That is for sure. Whether it is for early Bitcoin investors who hold faith or backtracking their investment logic after the explosive growth of Bitcoin, the existing views are comprehensive. This means that most investors have a consensus on why they invest in bitcoin.
However, the market value of Bitcoin is still in the vicinity of the market value of a large Internet listed company, and we still do not feel the admission of new funds.
Bitcoin actually needs a suitable social environment as a catalyst to further expand its consensus.
Is DAO's philosophy Utopia?
The short-lived bull market brought by Ethereum has not made DAO's concept further deep into the consensus of the people. This makes us wonder: Is DAO's idea Utopia? First of all, we must affirm that certain characteristics of Ethereum or the public chain can naturally expand its network effect, but we want to let a chain of public chains follow the spirit of DAO for autonomy and expansion itself is very contrary to economic principles.
Because in the market, “scarcity” is an objective fact . Faced with the scarcity of quality resources, people will first make choices. In many public chains, people basically choose the most ecologically important public chain for development and contribution.
In addition, although DAO is decentralized, it does not mean that it does not require a clear goal. Because the unclear value of the upper level of the public chain makes the whole system difficult to autonomy, but this does not mean that the concept and essence of DAO can not be applied to other blockchain projects.
Is the beginning of the pursuit of cash flow in the currency circle an evolution?
Ideals and bubbles are often disillusioned at the same time. For investors, the pursuit of cash flow is a way for them to protect their assets. For the project side, investors are considering the cash flow factor, which means that they have more dimensions on the project considerations, which will promote the quality of the project. However, the fact that investors only pursue cash flow is not an evolution, because often this limits the imagination.
What is the commonality behind the above investment theme?
1. The economic cycle is a catalyst for market development. Each investment theme is more or less affected by the external environment of the economic cycle . In the cycle observation series, we have systematically explained the impact of the cycle on the industry and the market.
2. The outbreak of investment themes have a network effect. A16z's article "Hidden Networks: Network Effects That Don't Look Like Network Effects" divides "hidden network effects" into slow networks, unfinished networks, current-limited networks, potential networks, etc., which makes it easier for us. When you look at the investment theme that has not yet broken out, think deeply about whether it has the characteristics of “hidden network”.
Once the investment theme breaks out, good investment products will bring excess returns to investors. At the same time, the industrial chain formed around investment products can expand its wealth effect.
This is the case with Bitcoin, the upstream industries (mine mining machines, mining pools, mines, etc.) formed around it, and the mid-stream and downstream industries (exchanges, custody, lending, and other financial services) are all worthy of the loss of Bitcoin. This is unique in the entire cryptocurrency market.
Ethereum also actually tried to establish such an industrial chain from its functional perspective, such as its expansion solutions, middleware, DAPP and other projects. Many projects have also received large-scale investments in recent years. At present, Ethereum has established the largest ecology in the field of public chain, but it has not helped it to expand the wealth effect for the time being. Perhaps it takes time to verify.
Future digital currency industry
One of the trends we can see in the future is that the digital currency industry is no longer moving around the theme of “blockchain”. The fact is that more and more traditional companies are issuing digital currencies, and more and more startups are financing in the form of digital currencies. Based on the “Digital Currency Project is an Entrepreneurship Project”, we first explain why the industry is attracting start-up projects, and then explain what the mission of the startup project is to make the future of the industry better.
What are the characteristics of the digital currency industry that can attract entrepreneurs?
1. The industry itself is in the early stage of development, and the theme of entrepreneurship is rich. We mentioned in the previous article that good investment products can always form an industrial chain and drive the development of upstream and downstream industries. In the early days of its own industry development, many entrepreneurs are keen to find the next “bitcoin” and “Ethereum” and develop around it. If you can find the next good target, the competition in the upstream and downstream industries is relatively small. There are now many teams working around the industrial chain of Polkadot and Cosmos.
2. The financing and exit methods are more flexible, making it easier for projects to be favored in the traditional investment field. Because of the long exit period and the difficulty of realizing equity, investors often consider the issues that are considered in the project when they are selected. The requirements for project qualifications are often higher. For a long time in the past, listings actually meant the end point for investment institutions.
The use of tokens for financing and exiting is more flexible, which gives the project more opportunities, including funding, influence, recognition, and so on. The fact that the exchange does not mean the end point. As we all know, there are various short-term mechanisms and financial derivatives in the digital currency market, which makes the survival of the fittest more flexible. The market is a two-way process, and not only the best projects are eligible for recognition. This is not a sophistry for the overall quality of the current project.
We make assumptions based on the human development path. If you are a small qualifier, staying in a class of superior or ordinary class, which one is more likely to be recognized by the teacher? Or, is it because we have a low level of qualifications, do we not study or work hard?
This is only the initial stage, the project is ultimately excellent, the market will give us the answer.
* When it comes to financing with stocks and digital currencies, the comparison between the two approaches is explained in the article "Redefining companies, securities, financing and stocks, and even capitalism – the token economy will be unstoppable" clear. However, individuals believe that "superiority" is far less important than "differentiation". "Superiority" is an opinion and "differentiation" is an objective fact. If there is "differentiation", there will be new attempts.
What is the mission of the project to promote industry development?
Zilliqa's CEO and CTO have resigned; Loom's famous researchers are also suspected of leaving the project. These two old-fashioned digital currency projects have experienced the bull market in 2017 and enjoyed the dividend. They have always been the leader in technology development in the industry. When people who are at the forefront of the industry also start to give up, it does reveal a kind of pessimism and frustration. Perhaps these projects have not found a breakthrough point, so they chose to give up. In fact, the industry needs more and more “stepping on the pit” project, because “stepping on the pit” also means development and iteration, which is also the foundation for the emergence of the break.
2. Seeking a balance between market and business
In the digital currency industry, the market is always one of the most useful channels to help projects quickly build impact. Since the project has already enjoyed the advantages of financing and exit flexibility brought by the market, it also needs to bear corresponding responsibilities. We review the current process of trading on the project:
1. An ordinary project has obtained 5 million yuan through fundraising and is ready to go to the exchange; 2. The exchange collects 1 million yuan of the coin fee; the market maker collects 2 million yuan of deposit, the exchange is on the currency, and the secondary market opens. City transaction
3. In the depressed market environment, early investors “recognize the situation and give up their illusions”, and then withdraw from the initial stage of the project, and finally only the low price of the secondary market.
Due to the convenience of the currency, the motivation and timing of the project's currency at this time became the main point of consideration. What the project side should think about is not how to trade on the exchange, relying on market makers to actively support prices, but should think about how to turn these traders into a part of their own network. Perhaps in this experiment, the logic of following the success of past investment themes would be a good choice.
3. Bring new inspiration to the industry
Start-up projects need to bring innovation to the industry. The industry needs more people to break, not followers. For example, if staking is popular now, then every project has to follow the trend to do staking. What is the point?
Whether it is to make small and beautiful blockchain infrastructure improvement programs, or to have traditional business models combined with the reform of the economy, each project should have its own characteristics and advantages, which will bring new inspiration to the industry.
In the final vision of the future of the industry, the first sentence illustrates one of the possible trends. The future is full of uncertainty. It is also possible that the next explosion of the digital money market will be due to the transformation and development of blockchain technology, or it may be due to the redistribution of production factors caused by war and unrest. No one can tell. The author focuses on the future of this perspective, just because it is indeed seeing more and more diverse companies (sharing economy, social entertainment, artificial intelligence, etc.) in the world trying to participate in the social experiment of this change. .