Comment: Take a longer view on cryptocurrency crashes
The Financial Times recently wrote on The Moral Case Against Crypto, saying crypto evangelists “are relying on the ‘greater fool’… continuing to believe … lies and perpetuating their dishonest schemes.”
This week in the Evening Standard, Andy Bell, founder and chief executive of leading investment platform AJ Bell, said: “It is not helpful, you will never find me advocating crypto, it is fresh air and promises. People invested in good faith. They have lost their shirt, their trousers and their underpants.”
But when money is lost, it is easy to point fingers. So, it is worth putting recent events into perspective.
So universal has the internet become, that we may have forgotten its wild west days. The dotcom crash saw individual investors lose $5trillion by investing in shares (yes shares).
But we all know what came next – the vast investment in tech companies created an infrastructure and foundation upon which the modern internet was built.
By comparison to the dotcom losses, the current total crypto market capitalisation is only $1.2 trillion, having lost roughly $1 trillion in value since Luna imploded.
But is there reason to think that there is a positive future for crypto markets? Is there a long-term value in the underlying technology which might justify a more bullish view?
To answer the first question it is worth comparing adoption rates for the internet vs those of crypto. The World Bank, Crypto.com, and others like Deutsche Bank have evidenced that that adoption rates are remarkably similar.
Technology driven hype cycles (like we have recently witnessed in crypto and experienced in the dotcom bubble) are nothing new – those who are interested should research how railways were built, or indeed today’s telecommunications infrastructure. Hype cycles drive adoption over the long-term of useful technology.
But what is the usefulness of crypto? By now most people have heard the term Web3, referring to the next generation of the internet powered by blockchain. Web3 promises an internet where users own and control their data, reducing the risk of exploitation by third parties.
In Web3 users will get paid fairly for using the internet (yes, you could get paid to surf the web) or choosing to share data.
Blockchain is the mechanism through which interactions are tracked and provides a record, which can be kept private and secure. It provides control over your digital footprint. Crypto assets are the mechanism for value capture in this future state.
Some of the most successful investors in the world believe in the vision, like Andreesen Horowitz, who just doubled their commitment to invest in crypto and who liken the long-term opportunity to “the next major computing cycle,” after PCs in the 1980s, the internet in the 1990s, and mobile computing in the early 2000s.
Sure, there will be hype cycles, misplaced celebrity endorsement, crypto bros, and the occasional Bored Ape to tolerate, but I think that is a future we can all get aboard. Don’t you?