I can’t remember if we did a 10x or 20x but it was lots of fun.
Don’t worry he will FOMO buy our bags and we shall laugh, as we always do haha.
As Bitcoin’s (BTC) price continues to climb ever higher, more and more people are beginning to educate themselves on how they can enter the cryptocurrency market. However, the realities of cryptocurrency ownership (long complicated addresses, passphrases and security risks) all remain barriers to adoption for new users. Programmers and technologists generally assume a level of understanding and ability with tech innovations that the average person on the street simply is not equipped with.
A survey carried out by our team saw 75% of respondents say they found cryptocurrency transactions stressful and unnecessarily complicated. A majority (55%) said they had had trouble in the past sending cryptocurrency transactions, 18% had lost funds, and 6% had suffered a man-in-the-middle attack. These complexities have real and damaging consequences even among technologically savvy elites; one programmer I know lost tens of thousands of dollars because a QR-code had been corrupted and his savings were lost forever. Highly qualified engineers and developers have lost millions due to misplacing files, losing passphrases or simply miscopying a 34-character address.
For any financial system to fully function, users need to have faith in its foundations. It is no coincidence that the word “credit” derives from the Latin “credere” which means “to believe.” The architects of any financial ecosystem, whether they be central bankers in Frankfurt or software developers in Silicon Valley, need to ensure that people trust where they are placing their money. Only by creating a secure environment and collective confidence of a broader user base will blockchain technology be able to deliver on its founding promises.
For example, crypto addresses could become self-sovereign nonfungible tokens that work with every token and every blockchain. Requests, which are decentralized payment requests, are privately encrypted between the two parties involved and include contextual metadata about the transaction, such as a memo or a link to an order or invoice.
The path for crypto
People often forget that university professors have been using the internet to send emails to each other since the 1970s, but the systems and protocols were too complicated back then for the average person to use. The World Wide Web as we know it today wasn’t accessible until the creation of HTTP. Blockchain technology is today at the same exciting place as the internet was before HTTP made it usable for the average person to build on. The blockchain ecosystem today needs to design easy-to-use protocols that can deliver what HTTP delivered for the internet in the 1990s: a user experience through browsers and the World Wide Web leading to mass adoption.
Developers should aim to make the experience of sending cryptocurrencies as simple as sending fiat with PayPal. It’s not hard to see why the average person on the street struggles with cryptocurrency, as the current systems are very confusing, but it’s only by bringing in more users that blockchain technology will gain more credibility.
The potential for blockchain to transform the way people and businesses interact is clear, but the infrastructure and systems in place have a long way to go. The last 25 years have shown how information and value can be shared and transferred in ways that were inconceivable just a few decades ago; however, the dynamic flow of information and data can only fulfil its potential when any person can use it.
Current naming systems built on blockchains are simply too complex for the average person to use. Few people know or care how Amazon and Netflix are integrated onto the internet, but they do know that it works — that’s the direction this industry needs to head toward.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Luke Stokes is the managing director at the Foundation for Interwallet Operability. He’s passionate about voluntary systems of governance and has been involved in Bitcoin since early 2013. He’s been a consensus witness for the Hive (previously Steem) blockchain since early 2018 and a custodian for eosDAC, a community-owned EOSIO Block Producer and DAC Enabler, since its inception. He holds a computer science degree from the University of Pennsylvania.
- The total trading volume of non-fungible token-based artworks exceeded $8.2 million in December.
- This represents an increase of more than three times compared to November.
- The crypto art scene also saw the biggest number of monthly active collectors so far.
December 2020 marked a new record for the blockchain-based art market, with the total trading volume of non-fungible token-based () works amounted to $8.21 million, according to analytics platform CryptoArt.io.
CryptoArt tracks various metrics across major NFT art marketplaces such as Nifty Gateway, SuperRare, MakersPlace, Async Art, and KnownOrigin. Among them, Nifty Gateway leads the pack, with roughly $6.67 million worth of crypto artworks sold in December. It is followed by SuperRare, which saw a trading volume of around $1.12 million last month.
Notably, December’s figures represent a sharp surge compared to November—when “only” around $2.6 million worth of artworks were traded. This can be partly explained by the ongoing price rally across all crypto markets. Since NFTs are usually bought with Ethereum, the higher the price of ETH gets, the bigger the dollar value is in total.
Likewise, December saw the highest number of monthly active collectors so far—414 compared to 258 in November.
The rise of NFT art
Unlike “common” crypto tokens, NFTs contain identifying information recorded in their smart contracts. This data makes each NFT different and unique as well as not interchangeable and scarce. Therefore, if an artist “embeds” his work into an NFT, it will remain one-of-a-kind as such.
Crypto art based around non-fungible tokens has exploded in 2020—along with its prices. In July 2020, “Picasso’s Bull,” a crypto artwork by Trevor Jones, sold for a then-record-breaking $55,555 on crypto art marketplace Nifty Gateway. In December, one investor paid $777,777 for a collection of digital art by Mike “Beeple” Winkelmann—with one second on the clock. In total, Beeple’s art sale raised $3.5 million; at one point selling $582,000 worth of art in just five minutes.
Other sales in 2020 saw a piece of a virtual F1 race track auctioned off for $223,000 while another collector paid $65,000 for a Kylian Mbappé trading card in a blockchain-based fantasy football game.
“The NFT space has been on a meteoric rise over the last year and we viewed a sale like this as inevitable. It may have been one of the firsts of its kind, but it certainly won’t be the last,” Tommy Kimmelman, head of artist relations at Nifty Gateway, told Decrypt at the time.
As the market matures, new innovations are cropping up; for example, Singapore-based platform NIFTEX enables users to create ERC-20 tokens representing fractions of NFTs, which can then be traded on decentralized exchanges such as Uniswap.
With NFTs booming in 2020, it looks like they have a bright future ahead of them in 2021.
It is clear that crypto is having its institutional moment. The investment decision is moving from speculation to allocation, and we are witnessing the maturation of crypto and digital asset investors in the process. In formalizing a dedicated digital asset investment strategy, institutional investors should assess the landscape thoughtfully with the goal of building an optimally constructed portfolio to achieve their desired investment objectives. Below, we summarize our top 10 takeaways from 2020 for institutional investors, based on our recent report “An Institutional Take on the 2020/2021 Digital Asset Market.”
This post is part of CoinDesk’s 2020 Year in Review – a collection of op-eds, essays and interviews about the year in crypto and beyond. Dan Zuller, CFA, is a partner at Vision Hill Group, an investment consultant and asset manager in digital assets.
1. Active management roars back.
Following a challenging 2019 market in which concentration in bitcoin (largely viewed as the market’s beta, or its headline volatility indicator) prevailed over distinctive asset diversification, active management came roaring back in 2020. According to VisionTrack data as of October 2020, crypto hedge funds generated net returns of +116% on average, outperforming bitcoin (+92%) by approximately 2,400 basis points (bps).
2. For investors, 2020 was the year of DeFi and asset selection.
DeFi stands for decentralized finance and can be best thought of as an emerging sector within the frontier digital asset market. Total value locked in DeFi contracts surged 25x to ~$15 billion as of the end of November, from ~$600 million in January. Investors that put capital to work in this thematic sector of digital assets generally outperformed bitcoin and the digital asset market beta in 2020.
3. Digital asset yields are sustainable, for now.
Digital assets offer highly attractive yields compared to traditional market instruments such as high-yield savings accounts. Will that continue? Growing demand from institutional counterparties and borrowers such as hedge funds, over-the-counter (OTC) desks, market makers and liquidity providers leads us to believe these yields are sustainable for the foreseeable future.
4. The remarkable rise, fall and rise again of crypto derivatives.
After a challenging 2018-2019 market regime, crypto derivatives have made a fascinating comeback in 2020. CME BTC daily futures volumes recently peaked at $2.2 billion at the end of November 2020 while Bakkt BTC daily futures volumes peaked at $178 million in September. “First a trickle and then a flood,” once the industry’s mantra back in 2018-2019, has proven true in 2020.
5. Crypto hedge funds are institutionalizing, but some more than others.
There are now a variety of beta- and alpha-focused hedge fund strategies rising to institutional “gold standards” in preparation for 2021. However, not all managers are evolving with the times. According to our VisionTrack database, approximately one in four managers have shuttered their funds since 2017 as a result of failed operations.
6. There’s liquid and there’s venture, but liquid venture is a tougher pitch.
The distinction between liquid hedge fund strategies (primarily liquid, short-term) and illiquid venture fund strategies (primarily illiquid, long-term) continues to be clear. However, the digital asset market continues to have hybrid “liquid venture” funds that attempt to capture the best of both the liquid and private worlds. While the opportunity set for such funds is certainly expanded, such strategies are not without their complexities and challenges.
7. Simplicity prevails: How the easy trades continue to win (and scale).
Throughout 2020, we continued to see investors prefer the simpler trades in the market. One of the most popular examples of this is the success of Grayscale’s investment trust products. Given the lack of a regulated bitcoin exchange-traded fund, investors have sought high quality, single asset vehicles, specifically bitcoin-only ones, to express their investment thesis in digital assets. There are also strong incentives for investors to maintain simplicity and capture the beta first when entering an emerging market. [Grayscale is a CoinDesk sister company.]
8. As the bull returns, beta competes against venture for capital.
Investors who allocated to venture funds as of Jan. 1, 2020, expecting a 3.0x return multiple over eight to 10 years would have achieved 90% of their return target and remained liquid in just the first 11 months of 2020 if they allocated to BTC instead. An allocation to ETH would have performed even better (4.7x return).
9. Stablecoins have become the market’s unsung heroes.
The rise of stablecoins boosted liquidity in the crypto market and enabled digital asset trading to become cheaper, faster and stablecoin-denominated. In 2020, the market capitalization of stablecoins has nearly quintupled from just under $5 million in 2019 to nearly $27 billion at the time of writing.
10. From speculators to allocators: witnessing crypto’s investor maturation.
While the crypto industry has witnessed some occasional institutional moments since 2018, none quite resulted in direct price appreciation the way 2020’s institutional movement did. Tudor Investment Corporation, Rothschild Investment Corp., Fidelity, JPMorgan, Raoul Pal, Stanley Druckenmiller, Citibank, Guggenheim, Alliance Bernstein, BlackRock, Square and MicroStrategy, to name a few, have enhanced bitcoin’s social proof this year.
A 2021 look ahead
We believe we are in the early phases of a 12- to 24-month bull market cycle in digital assets as part of a multi-decade long investment opportunity. Crypto investing is increasingly moving from speculation to allocation as high-quality institutional capital leads the current cycle. In 2021, it will be even more important to have a dedicated and intentional strategy to express the digital asset investment thesis.
There are now many different ways to invest into the growing digital asset class, ranging from single or multi-asset passive beta strategies to differentiated venture fund and hedge fund strategies. We expand on each of these in more detail below.
See also: Pantera’s Paul Veradittakit’s 2021 Predictions
Passive strategies can be accessed via single asset vehicles (e.g. BTC only) or index funds for multi-asset exposure. Reported assets under management (AUM) in VisionTrack is now $13.6 billion for passive beta strategies and expected to grow significantly in 2021.
We believe bitcoin will continue to be the first stop for many allocators who are new to digital assets. It is reasonable to assume that in order to build conviction in this asset class, allocators need to get comfortable with the general notion of how a blockchain works, and why its value proposition is unique relative to everything else in their investable universe (that may also come with longer and more established track records of success). In 2021, investors are also likely to expand their definition of beta to include ether in addition to bitcoin.
Venture funds in crypto generally focus on equity only, tokens only or equity and tokens across various stages from a structural perspective. We estimate dedicated crypto venture fund AUM to be in excess of $10 billion.
We believe we will see continued growth of dedicated crypto venture fund strategies into 2021. In addition to Fund II’s and Fund III’s, 2021 more focus is likely to turn to thematic differentiation (e.g. DeFi vs. infrastructure), structural differentiation (equity vs. tokens), stage differentiation (pre-seed, Series A, growth stage), and geographic differentiation (U.S., Asia, emerging markets, etc.).
At Vision Hill, we segment all crypto hedge funds into one of three strategy categories: fundamental, quantitative and opportunistic. There is currently $2.4 billion in dedicated crypto hedge fund AUM in VisionTrack.
We believe 2021 will be a breakout year for crypto hedge funds. With an expected bullish market regime, we expect distinctive (idiosyncratic) asset selection will present opportunities for differentiated and uncorrelated outperformance (alpha).
Preparing for 2021
Investors should create a dedicated, thoughtful and comprehensive investment process for digital asset portfolio construction as they would with any other investment vertical such as equities, credit or real estate. This begins with understanding the overall opportunity set, categorizing the different types of investments, their risk and return profiles, investment horizons and durations, and liquidity. The next step is gathering the best data possible to make more informed and smarter investment decisions. The future is bright for digital assets.