Jill, Seth Rosenberg and Slow's Alex Marcus recently wrote a book, The Existential Millennial. They were hanging last weekend and naturally Jill and Alex started talking crypto. The conversation turned pretty interesting so they figured they would share it with our readers! Enjoy!
Alex: The crypto bubble has popped. What is your take on the good, the bad and the ugly?
Jill: So the good thing is that the noise is gone. This time last year there was just so much confusion out there. Everyone wanted a piece of the action often for the wrong reasons. With all the hype came a lot of distraction. Now that it's quieter it is a lot easier to buckle down, focus, and build.
The bad, of course, is that the money is also gone. It's a lot harder for projects to fundraise -- even the good ones.
And this leads us to the ugly. Many projects did not adequately prepare for the boom times to end. They managed their burn rates poorly. They did not anticipate regulatory headwinds. They partied like it was 1929. This is now leading to layoffs at startups like Consensys and other mainstream projects folding.
AM: Most blockchain companies who accepted BTC and ETH when fundraising have lost serious amounts of capital in recent months. How are companies going to continue to drive growth with less runway and resources?
JC: A lot of founders got it in their heads last year that they would sit on the crypto they used to raise funds. They did this for any number of reasons... Some thought they could be crypto hedge fund managers while also running their project. Some thought it did not jive with their ideology to hold fiat currency (yes seriously). Of course really what they did was double down on their exposure to the space. It was the equivalent of starting a new social networking app and deciding to invest all the funds you raised into Facebook stock. Probably not a great idea to have that much correlated risk.
There are a lot of other problems that come along with this model as well. Making long term strategic decisions and even hiring become problematic as your burn rate suddenly becomes a moving target. Your runway might be swinging around 30% in a week.
The biggest issue, though, is that many of these projects don't have revenue strategies. The idea was that their ETH and the value of their own token would continue to rise over time and they wouldn't need revenue. That's turning out to have been shortsighted. It will be an interesting year ahead as we watch these free open source software projects experiment with finding a suitable business model.
AM: Despite the bear market some projects are making more technical progress than ever. How can those companies expect to successfully launch at the current market cap?
JC: The teams that are innovating will continue to do what they have always done, chipping away making technical progress. It doesn't take a $100mm ICO to be able to innovate and successfully ship a cryptocurrency or related product. Ethereum and Zcash both taught us this back in 2014.
That said, even the companies that are making real progress are going to have a real challenge when it comes to capturing the attention, hearts, and minds of their potential users. When cryptocurrency is going through a hype cycle, it's easy -- everyone can't wait to get their hands on what you have to offer. We see cryptocurrencies competing with each other in bull markets for market cap share. When the market slows down, however, the crypto world wakes up and remembers that coins are not competing with each other -- they are competing against the status quo.
AM: The bear market has hurt both builders and investors. But investors are seeing deals at better prices with more power over deal terms. Is now a good time to be an investor in projects (not crypto)?
JC: Yes. There was an odd dynamic throughout the middle of this year in which the prices of publicly traded cryptocurrencies had retraced dramatically from the highs (e.g. Bitcoin went from $20,000 to $6,000) but private deals and SAFTs had not yet repriced and mega rounds were still getting done. I'm glad those days of dislocation finally seem to be behind us.
There's nothing like investing in a down market! And yet few seem to want to. The very fact that investors are in a more competitive position now speaks to how many have left the crypto market (at least until the next hype cycle returns).
AM: There are still no blockchain applications with real traction. Will 2019 bring our first popular dapp or will it be a year during which we continue to build out protocols and infrastructure?
JC: Crypto has a problem. The problem is that many of the great minds in the space have a tendency to be optimizers. They are absolutely brilliant when it comes to looking at something and saying "oh if I tweak this then I can make that one thing better." We see this play out even in the nicknames projects are given -- Web 3, Ethereum 2.0, "a better Tether", etc.
There are not nearly enough people, however, looking at protocols and possible applications from first principles. There are few who start with a problem statement and work to create the best product to solve that problem. Until more innovators start to do this, we won't see a dapp or product really gain traction.
I think we are stuck in the protocol and infrastructure phase a little while longer. And when we finally do see a dapp or product take off, I suspect it won't look like anything we are anticipating today. I think it might look pretty mundane, actually, and we might not even realize that it's using something called a blockchain in it's backend.
Need a last second holiday gift for your _______ millennial? Get a copy of The Existential Millennial. It is a 135-page, hardcover Mad Lib Book for Millennials with illustrations from the talented Shui Pei Luu.
All proceeds are going to suicide prevention and brain health non-profits.
Slow portfolio company Fragments has changed its name to Ampleforth after the the "1894" character whose job is to translate poetry into Newspeak. Ampleforth aims to preserve the unit of account and money properties of its tokens. Instead of pegging to a fixed supply of fiat capital, Ampleforth's Amples have an elastic supply based on demand.