5 blockchain observations from the eyes of a finance professional

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For someone with an eight-year career in finance, the blockchain and cryptocurrency space has been nothing short of fascinating—volatility in magnitudes and unprecedented levels of interest from the general public coupled with revolutionary technology.

I am barely scraping the surface, but here is a summary of my top five observations on the blockchain space.

1. Revolutionizing startup investing for both investors and startups

The combined market capitalization of all cryptocurrencies according to CoinMarketCap is in excess of US$400 billion right now. To put this in perspective, it is approximately the market capitalization of JPMorgan Chase. The speed at which this market capitalization has grown has been phenomenal—growing 20 times since 2016.

From an entrepreneur’s perspective, the blockchain space has been a game changer. If you looked back just two years ago, a startup’s funding options were either to bootstrap or reach out to venture capital firms. Now, with ICOs, startups can also raise funds from the general public, though of course it’s not without its downsides.

From the investor’s perspective, the ICO model levels the playing field for investments. While venture investing used to be only available to accredited and institutional investors, now the public can invest in startups even with small ticket sizes.

Of course another reason for the growing interest in this emerging asset class is the potential to make large gains in a short period of time. If you invested in the S&P 500 post-Lehman crisis in 2008 and held it to today, you would have more than doubled your money over a period of roughly 10 years. In the ICO world, it is not uncommon to hear of gains of 10 to 20 times in 2017.

ICOs also have another peculiarity: it is acceptable in this space for startups to try to raise money just from an idea which they summarize in a whitepaper. In the old venture financing model, startups generally had to have a working product before funding would be offered. As such, do expect that while ICOs can offer high returns, the failure rates are also going to be high.

2. The market never sleeps

The blockchain doesn’t have off-time; it functions 24/7. Hence, so do people in the industry. Projects in the space are expected to be answering questions from investors/enthusiasts round the clock on all social media channels, and answers are expected within a span of a few minutes. To keep existing and prospective investors interested, project updates are delivered weekly, and marketing materials–like tie-ups and contests–have to be released regularly.

A whole new industry has been built around this space (e.g. professional community managers that field questions 24/7, dedicated content marketers, etc).

In one instance, I had a meetup organizer pull out two days prior to an event. At 2 am I was scrambling to find another organizer, and to my surprise, someone responded to my SOS within minutes. We spoke on Skype at 2:30 am, and by 10 am the next morning, she had secured a venue, issued an announcement about our meetup, and started marketing the event.

Initially, I thought this may have been a one-off case, but I’ve come to realize that the intensity and frequency the industry demands is unlike anything I’ve ever seen before.

3. Volatility is your frenemy

We have all heard about the volatility of cryptocurrencies. Even in contrast to high-risk assets like equities, cryptocurrencies are much more volatile. Fluctuations in excess of 50 percent within a single day are not unheard of. This is due to a number of reasons.

One reason is that it is difficult to value cryptocurrencies. Investment analyst Chris Burniske, who previously worked at ARK Investment Management and was the first public fund manager to invest in bitcoin, has spearheaded efforts to come up with valuation models for these.

4. The technology

5. Real-world applications will decide the fate of blockchain technology