We look at surviving or thriving in this cycle, bitcoin and altcoins adoption, and how gold will be the best investment option for the next paradigm shift. We conclude with our thoughts on the future of the token economy.
In Part 1, we reviewed the crypto market over the past 6 months and analyzed the alteration of the market sentiment from optimism to anxiety by comparing the recent 2 cycles. We then used the Pendulum Theory to explain “cycles” and concluded with the Paradigm Shift by Ray Dalio.
An Inciting Situation
Recently, there is much news that can support our predictions on the global economic and political situation, such as the Huawei incident and the China-US trade war. Looking at the current situation, we find that the real estate and stock market have basically hit the bottom. There is still 2% to earn from rental income through real estate investment; while investors are afraid to buy stocks, especially the US stocks.
Moreover, the economy in most major countries are not good, and political tension is escalating. The status quo in the United States is not optimistic, not to mention Europe.
In the past two days, Japan has restricted exports to South Korea. These exports are materials being used in the manufacture of semiconductors. Once these restrictions come into effect, the possibility of South Korea’s semiconductor industry collapsing is high, which kicks off another trade war.
Lastly, there is a rise of Populism, which advocates self-protection and new xenophobia that rejects external collaboration. Brexit has been discussed for many years now; this is also the case for the Middle East, Iran, and Iraq, although, for these countries, there are also other factors besides the ones mentioned above. Intuitively, we feel that the political situation is heading in the direction of conservative populism.
Survive or Thrive?
In this cycle, people will instinctively avoid risks, because if the situation continues as it is, the conflict will intensify.
Of course, this is one of the worst-case scenarios, but we all know that imagination is one of the strongest capabilities a human has. Once you imagine that something bad can happen soon, you will choose to protect yourself before it actually happens.
When we witness all kinds of incidents in real life, which signals us to protect ourselves, we will tend to become risk-averse. At this time, because we want to save ourselves, most of us become selfish, holding on to anything that ensures our survival.
You won’t think about going outside to collaborate with anyone else, creating something new for the future, or figuring out what kind of changes technology could bring to us in the future? No, you won’t.
The only thing you think about at this time is to survive.
How to avoid risks? Ray Dalio only mentioned Gold, not Bitcoin, it seems that he was not bullish about Bitcoin before. But it is undeniable that Bitcoin is another form of digital gold, which has become a consensus among more and more people.
Then why does the growth of altcoins stagnate in this cycle? And what can we learn from this situation?
Indeed, prosperity and hope are mainstream factors that drive the world’s development, but there are cycles as well. The trend now is that the pendulum is swinging towards being conservative and risk-averse, and it does not look to change anytime soon.
Bitcoin or Altcoins?
Things are clearer if we divide the cryptocurrency world into two parts. In the current cycle, bitcoin adoption is driven by people’s demand for a safe haven asset, not for the hype.
Although Bitcoin is the very first application of blockchain technology, it has nothing to do with technology now. At present, people simply see Bitcoin as “digital gold” — something conservative, and that could possibly save you when you are facing trouble. On the other hand, altcoins satisfy the hype demand. People want to get rich by betting on altcoins, but few people will bet on Bitcoin, because we believe that Bitcoin gains may not be enough.
Reality often reflects the will of the majority — the pendulum swings towards risk aversion, rather than hype.
According to Ray Dalio, gold is gearing up for a bullish reversal, while other assets are likely to depreciate. In the past six months, the cryptocurrency market has Bitcoin seeing a bull run, while altcoins show bearish signals.
Altcoins represent the future and hype, while Bitcoin represents conservatism and risk aversion.
The Future of the Token Economy
Is there still a future for the token economy?
Before giving an answer, let’s first think about the following questions: what is a healthy token market? Is it a market full of hype? Or a market with price inflation? Although both tend to be what the investors prefer but are this kind of market really healthy?
The answer is quite simple. A market full of hype and price inflation is not healthy. However, I still believe that the token economy has a future, which the key to it is the cost.
Here are the objectives of the two IPOs: one is raising $25 million, while the other is raising $500 million. The second last line shows the cost of the IPOs going public on Nasdaq, which is $4.3 million and over $6 million respectively. The last line shows the cost as a percentage of the amount raised, which is 17% and 13% respectively.
As for the Sci-Tech Innovation board, which the threshold is $1 billion to $10 billion, the minimum value for such a company to be listed is $1 billion. Then what about the cost? It’s about $30 million to $100 million.
In other words, even if companies can gain a huge amount of money after being listed, it has to pay a large sum upfront first.
What about the crypto market? Take Binance DEX as an example. The cost for a token to be listed is about $100,000 USD. This is a benchmark in the industry. Compared with the Sci-Tech Innovation board, it is characterized by the greatly reduced cost.
When we look at Sci-Tech Innovation board’s introduction, it states that compared with Nasdaq and other exchanges, it provides higher efficiency with lower cost.
However, even if the Sci-Tech Innovation board wants to lower the threshold, disregarding requirements for revenue and market value, it won’t be able to reduce its income or listing cost to the extent of the crypto market. Based on this fact, we may well hold our faith in the token economy due to its low cost. Every economic activity has a cost, and since it’s a market activity, we can compare the costs of different activities.
Obviously, it costs less to list a token. Although the quality of the projects available now is relatively poor, we may still see more projects of better quality in the future.
Take Netflix as an example. When Netflix was first launched, we used to be bearish on it due to the poor quality of videos, which was contrary to what people needed. But now, Netflix is doing a pretty good job. The widely criticized low-quality videos in its early days are no longer discussed.
Therefore, what matters most for a project in its infancy is the cost. Only by having a low threshold would you be able to survive in the Internet era.