The entire global cryptocurrency market was worth $1.6 trillion
by the end of July 2021. That's more than six times what the
crypto market was worth in July of 2020.
And it became very trendy on Wall Street to kind of trade
cryptocurrencies. And I think that's really what the last 18
months have been about, that hype cycle.
Bitcoin is now old money. I mean, you look at all of these
altcoins.
Now I own ethereum. I feel like you have to have exposure to
bitcoin, just like you have to have exposure to gold.
It's a good reminder that the story is bigger than just
bitcoin.
In fact, the current number of altcoins clocks in at more than
11,000 and counting. This includes ether, USDC, and of
course, dogecoin.
When Elon Musk showed dogecoin on Saturday Night Live, I mean,
that was the peak right there. You don't get any more hype than
that.
Bitcoin's dominance has fallen in the last five years.
In December of 2016, bitcoin dominated the crypto market,
controlling 96% of the industry. Now altcoins are taking up a
larger and larger share.
By the end of July 2021, bitcoin made up less than half of the
global crypto market. Crypto's renewed attention and volatility
has caught the eye of government officials like U.S. Treasury
Secretary Janet Yellen. She's now pushing for regulators to
police digital currencies, specifically the kind known as
stablecoins.
But with the number of altcoins growing in number and value,
will it be too little too late?
Here's how altcoins work.
Altcoins are basically any cryptocurrency other than
bitcoin. Currently, there are more than 10,000 altcoins in the
world.
Altcoins are powered by blockchains. They can be traded,
held as a store of value, used to pay for transaction fees or
incentivize miners.
Bitcoin, the first cryptocurrency laid out the
technological groundwork for many altcoins. Nicknamed digital
gold, bitcoin now primarily gets thought of as a store of value.
Today the price of bitcoin influences the price of other
altcoins, but other coins and their blockchains offer
additional capabilities and flexibility, hence the need for
altcoins.
This is known as bitcoin maximalism.
Bitcoin maximalism basically states that bitcoin is the only
blockchain that actually has value. And there's no use for
blockchain other than bitcoin.
Most of the coins out there are either worthless or should be
worthless, or don't bring very much utility to the table. But
you know, 95% that of let's say, 10-20,000 coins that are out
there, that means that there are thousands of coins that do have
value and do have utility.
Determining a coin's usefulness depends on a number of factors.
So we asked a developer, a crypto trading exchange, a
crypto asset manager, and an investor what they look for.
Developers in general are extremely focused on blockchain
technology.
We talk directly to customers. We try to understand what
they've been interested in and what they've seen. And then we
What we look at is actually the technical capability, we try to
understand the team and try to understand, you know, what's
actually live on the project. We try to make sure that the
technology is actually working.
The first mistake that people make is that they get hyper
focused on the technology,
Which blockchain is a little bit faster than the other one? Which
one is more efficient, which one scales better?
And they forget that in this market, size really does matter.
Don't get over focused on the technology.
The other big mistake, which is the flip side of this coin, is
don't assume that we're at the end of crypto history, and that
what exists right now will be what exists in the future.
Volumes are an excellent indication of where the markets
heading and how big a project is. The other metric that I
would say not to discount is social metrics.
We think about cryptocurrencies, they're not companies, right?
They're not currencies. They're actually, what they are is
networks at the end of the day. The best way to evaluate a
network is how many people are talking about it.
It's important to think of these crypto assets as backed by
technology. And each technology can be optimized to be really
good at one or another thing. In the same way that Microsoft is a
software company optimized to be good at one thing, and
Salesforce is a software company optimized to do another thing.
Crypto assets can be divided into various categories.
A store value — so the place to hold your money.
They can be used in smart contracts, which is an agreement
between buyer and seller.
There are utility tokens.
And then there's a specific subset of cryptocurrencies
called stable coins, which have a value pegged to a real world
asset such as a fiat currency like the US dollar or a
commodity like gold.
We're going to look at a few popular players in these
categories.
The Ethereum blockchain often gets described as a world
supercomputer. Its ability to run decentralized applications
and deploy smart contracts makes it favorable to developers like
Austin Bunsen.
So Bitcoin is like really good at this very, very one very,
very simple thing which is like being decentralized censorship
resistant money. Ethereum, on the other hand, is very focused
on being a general computation platform that any developer can
build on.
Ethereum is growing so quickly that it received an upgrade in
August 2021 to help it keep pace with miners and transactions
alike.
Within Ethereum there are cryptocurrencies like Polygon
which assists with the blockchain's congestion and
Uniswap, a popular decentralized crypto exchange. There's also
Polkadot, a rival to the Ethereum blockchain.
Within the fast-growing arena of decentralized finance,
stablecoins are considered a volatile-free asset because
their value is connected to currencies or other reserve
assets.
Examples of stablecoins include USDC and tether, both of which
are pegged to the U.S. dollar.
Then there are speculative tokens built on technology that
doesn't have a fundamental use case or project. The most well
known is dogecoin, which was branded after a viral dog meme
from years ago.
It's important to note that the crypto industry remains rife
with scams.
Popular tactics include 'pump and dump' schemes, where
investors plant false news in order to push prices higher.
There's also the 'rug pull'. That's when founders abandon a
project take the money raised and then disappear.
When Wall Street institutions like JPMorgan and Goldman Sachs
piled into bitcoin and other cryptocurrencies, after years of
avoiding them, the news caused crypto prices to soar.
18 months ago, this was still primarily a grassroots retail
phenomenon with crypto owned mostly by individual investors.
Beginning shortly after the pandemic started, beginning
around May or so, we started to see institutions move into
crypto in a major way.
Not to be deterred at the retail investors who were drawn to meme
stocks, like GameStop also invested in digital currencies
like dogecoin.
We've had millions of customers sign up, over 3 million since
the beginning of the year. Really a lot of active interest
and growth with bitcoin and beyond.
Lots more cryptocurrencies polkadot being one, ethereum two
and staking capabilities there.
It's not just about trading and buying and selling anymore.
There are a lot more activities that you can take.
Crypto's popularity from retail investors and Wall Street has
picked up the attention of government officials, making it
a prime target for regulation.
Conversations about crypto regulation go back as early as
2013. But governments at the time didn't really understand
the technology and the crypto market was tiny compared to now.
Since then, the government's understanding of crypto has
vastly improved.
In July 2021, Treasury Secretary Janet Yellen hinted at
regulating stablecoins.
Central banks see the growing asset as a threat to financial
stability. Then in August 2021, SEC chair Gary Gensler called
for tougher regulation to protect investors.
The regulators are probably going to get what they want, in
most respects.
And what the regulators want, in my experience, is not to crack
down and eliminate this industry, not to strangle it in
its crib. But they do have strict requirements for how
companies like Kraken, Coinbase, Binance, Bitstamp and Gemini,
and all the rest, treat their customers how we mitigate risks.
I think we're going to see more development of that.
Crypto projects like Ethereum and Cardano have moved to
countries like Malta and Switzerland, areas with
crypto-friendly regulation. Advocates warn this trend could
result in the U.S. missing out on a huge opportunity.
More and clearer regulation could be the single biggest
driver of the next bull market of crypto. The way to evaluate
whether the new regulations which are definitely coming are
going to help or hurt crypto is this. If these new regulations
put crypto on par with the traditional financial system,
crypto's going to win because the underlying technology is
more efficient.
It's more inclusive, it's more innovative, it's newer, it's
faster, and better.