Outlier Ventures Weekly Brief Issue #4 |   View Online
The Crypto Winter
How Bad Is it Really?
It’s been a rough year for the hodl gang. Market capitalisation of the token ecosystem has crashed to around $100 billion from a high of over $800 billion at the beginning of the year. While a winter was anticipated by many and the market’s return to ‘efficiency’ should not be a surprise, it is only fair that these price swings makes one sceptical of where tokens are headed next. As with all technology induced bubbles, we may be waking up from the excesses of 2017 and realising that the basics such as scaling and user experiences are yet to be tackled. And perhaps, many tokens have little utility beyond the purpose of fundraising. Markets engaging in irrational excuberance and returning to efficiency over time is nothing new. In fact, all new technological paradigms were marked by similar rallies in prices. Looking through the fog of the winter to look at indicators of what’s happening behind the swing of token prices helps take a broader view. We take a look at two such signals for the days newsletter : 
Token generation events set a new low in September 2018 with only over $150 million raised through them. While many could point to this as a lack of appetite for investing in blockchains, the truth of the matter is more institutional capital from traditional investors and corporate backers have flown into the industry this year than any of the previous ones. The capital inflow has been across stages and not necessarily only into projects that have found their product market fit. As Jamie Burke mentioned at Techcrunch Berlin recently, as the industry evolves, it is likely that venture capital will become the preferred source of funding and open-source, tokenised networks will come into prominence as the venture matures in size and stage. This is likely to reduce the number of scams within the industry and ensure that competition between venture funds give founders more value-added services from their sources of capital.
As with the maturing of all ecosystems, it is likely and unfortunate that we will see many startups shut down in the coming months. It is no longer a rarity to hear about teams downsizing to be able to cope with the drastic decline in their treasury over the year. However, larger more established startups that are profitable in the ecosystem have begun acqui-hiring to capture talent within the industry. Coinbase for instance acquired over 8 companies this year alone including Paradex, a decentralised exchange. Between token venture funds and established, profitable companies within the industry, it is possible that we see a high number of mergers and acquisitions in the months to come. We had anticipated this earlier in the year and named it the Hungry Protocol thesis. These will act as much needed exit routes for equity-based shareholders within the ecosystem. 

Hibernation often comes along with a prolonged winter in any industry. The decline in retail interest may be failing to account for how the industry has evolved in terms of infrastructure, regulations and capital investments over the course of the year. More on the key trends, figures and acquisitions you may be missing in this bear market in our State of Blockchains Q3 report. 
News from the past week
1. G20 leaders signed a joint declaration to develop a regulatory framework for cryptocurrencies -  Link

2Fidelity and Nasdaq invest in ErisX- Link 

3. Cryptonetworks and theory of the firm-  Link

4. Coinbase  to list new digital assets - Link

5. Surviving the next era of Tech -  Link

"Smart partners negotiate fair deals because they know that lopsided deals are fragile and that most value accumulates in long-term trust relationships. You can tell a lot about a potential partner by their opening offer." - @naval
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