Is this bear ever gonna hibernate?

Posted on April 19, 2018. Filed under: Uncategorized |

I had a beer last night with a friend who has been instrumental in the formation of a number of well known blockchain protocols, and he asked me a question that I thought worth writing about. He basically said that we’ve been in a bear market for 4 or 5 months, and it reminds him of other bear markets in crypto (i.e. 2014-2016), and he was wondering if I thought this would be a similar duration to the prior, or if mainstream investors would buoy the aggregate market cap of crypto in the near term. My response, was that, despite recent runs, it feels to me like all participants in the ecosystem that are focussed on the here and now, have pulled back and will stay on the sidelines until some other catalyst pulls them back in. I don’t think the droves of new Coinbase and Robinhood users are going to take the price of Bitcoin from $8200 to $20,000. I also think that most of the crypto hedge funds that spun up opportunistically to capture LP demand are here and now focussed, losing money, and have pulled back in a similar way. I don’t see these cryptofunds driving the market into a bull scenario either.

So here and now thinkers have their foot closer to the break than the gas, but engineers, and builders, and venture capitalists in the business of investing on a 10 year time horizon are still flooring it…even more so than 6 months ago. This is almost certainly a more healthy dynamic for a nascent technology and ecosystem, and the investments that these longer time horizon participants are making, be they labor or capital investments, are undoubtedly going to grow the total value of this space on a 5-10 year timescale.

I think the here and now thinkers trying to time the next run should be looking more to institutional inflows to reverse a bear market…which is not a new idea. There has long been the narrative than institutional money is coming in as soon as custody and some other surrounding infrastructure problems are solved, and I think it was largely posited that those inflows would accrue to “large market cap” coins like Bitcoin and Ethereum. In practice, I think that shape of institutional money is still largely on the sidelines, while venture capital institutions represent the most significant institutional inflows to the space so far. Interestingly, venture capital is not flowing to large market cap coins because it’s very difficult to persuade LPs that venture managers are or should be in the business of buying public securities (or public non-securities depending on where you net out from a regulatory standpoint). Every top tier VC just got finished convincing LPs to let them buy tokens instead of equity, but surely they still must be in the business of proprietary access and early deal making. That requirement to “buy privately” and a requirement for funds ranging in size form $300M-$2B to put enough capital to work in any given investment to “move the needle”, has led to a clear bubble in what I’d call the “2nd presale” where hot projects are raising tens to hundreds of millions of dollars pre-float, at valuations that have not yet reconciled with the recent haircut in publicly traded tokens. Going forward, I expect these venture inflows to get more sophisticated and confident in how and where they build their ownership positions. I think the “2nd presale” will cool meaningfully and it’s likely that venture capital will accrue to publicly traded tokens going forward…it’s just not happening yet (with a few exceptions).

So I think that redistribution of institutional venture capital out of the private bubble and into a forward rationalized public market, if not already rationalized, coupled with the sovereign fund, pension fund, endowment type inflows that have long been posited, is the most likely path to the next bull market, at which point, as always, retail and mainstream investors will follow and amplify the run, and I have no idea on what timeframe that happens, but it feels at least a year out from now. X factors like geopolitical instability, public equity market corrections, government currency manipulation, and the like, I think are also reasonable candidates to catalyze another run, but it’s pretty hard to count on those events.

I am not a here and now investor, I’m not in it for a quick buck, I don’t actively trade crypto, and I have an incomplete view of the wall st side of this market, so take all this with a grain of salt, but high level it does appear to me that the right long term human and financial capital is flowing deeply into the crypto ecosystem, and therefore on some longer time frame, meaningful value is going to come out the other side. I would not want to be in the business of giving my LPs near term exposure to this space, because you are a genius one year and a complete flop the next, but I feel pretty good about assembling the right 5-10 year exposure. That’s how I’ve allocated my personal capital and it’s how I’d do it for others if they asked me to.

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    I’m a NYC based investor and entrepreneur. I think there is one metric that can be used to measure the value of a human life and that’s impact. How did you change things? How many people did you touch? How different is the world because you lived in it and how positive was the change that you affected? (p.s. i don’t use spell check…deal with it) You can email me at Jordan.Cooper@gmail.com

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