Blockchain’s Bitcoin Campaign: Great Advertising … Great Product?

As apps Bitcoin and ICOs are penultimate howeveramp8212the promise of there is greater than the there that is there nowamp160In 2017 bitcoinamp8217s rise in value easily outstripped reasonable estimates of the value of the improvements in the technology and supporting infrastructure Donamp8217t just take my word for it amp8230 ask Galaxy Investment Partners one of the funds early to invest in crypto whose head put out before Thanksgiving a 10000 yearend bitcoin price target As BlockTower Capital another forward fund manager puts it one central thesis for investing in bitcoin is its potential to be one day a store of value free from state censorship That day is not today which is fine as investments are about the future ICOs have raised billions in 2017 but if thereamp8217s a utility token on the cusp of capturing the crypto community much less recruiting to the crypto cause the great unwashed masses still fixated on fiat Iamp8217m not aware of it Cryptoamp8217s amp8220email momentamp8221 has yet to arriveFor years Warren Buffett avoided tech investments because he said he did not understand the technology well enoughamp8212how would you adapt this approach to the inscrutable blockchain Techwise blockchain is some tricky trick different in kind and not just degree Cryptography distributed computing game theory token economics and new software programming languages are among the intellectual challenges facing blockchain investors Applying a strict Buffett rule would keep you from investing in crypto period and in fact Buffett has recommended that investors steer clearOf course Buffett now owns stock in Apple so the old dog has learned some new tricks in that vein what might work for those seeking some amp8220exposure to the cryptocurrency asset classamp8221 in the vernacular of the financial advisor perhaps seeking to cloak what others call rank speculationamp160Letamp8217s look first at some reasonable approaches and second at some paths that may offer more promise than performanceIn tokens we trust amp8230 our investment edge A standard critique of ICOs is that they look to raise money for projects that could not garner much if any angel or earlystage VC funding It comes down to the token which is the most likely source of an investoramp8217s amp8220variant perceptionamp8221 as termed by another legendary investor Michael Steinhardt Traditional angels and VCs likely lack an edge in valuing tokens and may actually have biases that are baggage when trying to do so Token economics and token valuation are linked and we know at least this much token value rises with greater demand for the resource provisioned by the token and falls with higher token velocity shorter holding periods Principles of token valuation are still being uncovered but the mindset of a model even if incomplete helps discipline the due diligence done on the projectmeistersFor utility tokens which have made up most token sales in 2017 assess the case for whether the tokens are essential to providing either a completely new product or service or an existing product or service at higher quality andor lower costamp160amp160First not all utility token networks are alike For example in some cases the token seller is also a the service provider in some cases not The distinction may bear on the token economics and legal classification of the token salesamp160Second despite the fashion of deference to decentralization a mix of centralization and decentralization may maximize network value Decentralization does not improve every process nor deliver it at lower cost and programming business processes onto the blockchain bugfree is no mean featamp160Third in many cases value creation of a tokenized networked must be benchmarked against the current economics of nonblockchain competitors The investment decision may hinge on whether incentives through mining rewards transaction fees etc lead decentralized actors to deliver promised functionality at a competitive priceamp183amp160Fourth the allocation of value among the tokenized protocol and apps running on the protocol is likely to vary among different blockchainsamp160Finally in selling and transacting with utility tokens more than most earlystage assets legal risks may best be viewed as a cost of doing business more likely managed than eliminated In the US there often may be no one right path for utility token sales especially when considering postsale project functionality eg sales of securities may come with nettlesome holding requirements A bright spot is that unregulated utility token sales appear welcome in the UK although the picture in the rest of the EU may be changingHere are a few other observations on token economics and valuation with a slant to media blockchain applicationsamp160ICOs could be another vehicle for directtoconsumer selling potentially particularly attractive to the biggest talent Louis CK early to directtoconsumer might now have to dig into his pocket for a coin of his ownamp160Over the longer term decentralization in content distribution could pressure networks and big tech platforms In a world where marquee properties seem more rare than networks decentralized apps might surpass networks in curation Decentralization could make spats between tech giants about content access eg Amazon vs Google irrelevantamp160A token network provisioning consumer actions may have advantages over one provisioning third party business services Third party service providers participating in a decentralized network have known costs which new tokens must cover while consumers may be more likely to see new token compensation as pure upside whatever its valueamp160Tokens can help spur gamification but likely subject to diminishing marginal returns Whether inside or outside of media use cases a large new reward for doing the same activity likely beats a smaller reward for doing a different activity Think of social networksamp8212they offered a better version of email partly due to gamification of status at no extra cost and took offamp160Fears of eventual token fatigue may be overblown Just as consumers are used to dealing with many sellers and brands they could likely deal with many coins especially as tradingconversion among coins becomes more seamlessamp160Letamp8217s close with two coin cautions about data mining as an investment tool and the investor skills needed for the new world of token investmentamp160First beware the carnival barker with access to a spreadsheet and a quant It is the age of data but scraping the web for scuttlebutt on blockchain projects may surface more foolamp8217s gold than the real thing digital or otherwise The number and maturity of tokenized protocols are likely too low to support statistically significant correlations between early stage data and later stage profitsamp8212most have not yet even delivered their promised services The chatter of 20something tech geeks may miss the larger commercial ecosystems into which blockchain projects must fit to gain tractionamp160Second in these early days it is not yet clear which skill sets make for good blockchain investing On the one hand many ICOs are for earlystage projects the bailiwick of those with longerterm horizons like those in private equity or venture capital However the liquidity of tokensamp8212one of their big differentiators from other earlystage investmentsamp8212may put investors accustomed to longer investment horizons into the brave new world of shortterm token trading and attract those with that skill set as well Indeed the improvement in token liquidity facilitating such strategies has surprised some big names in crypto this year Data mining may be better for assessing the outlook for an ICOamp8217s fund raise than for the prospects of the project itself That raise and whether it hits its hard cap for example may be a predictor more of postsale token price performance in the near term than the long termThe opinions and points of view expressed in this content are exclusively the views of the author andor subjects and do not necessarily represent the views of MediaVillagecomMyersBizNet Inc management or associated writers

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Blockchain’s Bitcoin Campaign: Great Advertising … Great Product?

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