Blockchain and Cryptocurrencies: ScaleVP Comments From the Sidelines

Just because an investor isn’t putting money into blockchain technologies or cryptocurrencies yet, it doesn’t mean they’re not watching these emerging phenomena with interest.

Andy Vitus, a partner at Silicon Valley venture capital firm Scale Venture Partners, has been keeping his eye on the potential uses of the blockchain, which is best known as the technological foundation for digital currencies such as Bitcoin. But it is also recognized as a possible disruptor of the way computing is done in many industries.

Vitus has presided over ScaleVP’s investments in companies such as Apteligent that support the development and secure performance of apps, and others such as DataStax that are concerned with the management of databases. Blockchain technology is seen as a novel way to make stored data tamper-proof, prevent financial fraud, verify online identities, and create reliable ways to track the movements of assets other than money, such as food and other transported goods. Logistics is the bailiwick of another ScaleVP portfolio company, Arena, which aims to streamline supply chain management.

Vitus shared some observations and predictions with Xconomy about the blockchain trend’s progress in 2018:

“Blockchain exploded in 2017—blockchain projects raised hundreds of millions of dollars, not with a product or traction, but with just an idea and some technical specifications,” Vitus told us in an e-mail exchange.

“This level of speculation, however, is unsustainable. In 2018, we’ll see the dust settle around blockchain as adoption of the technology starts to become mainstream. In order for this to happen, though, blockchain will need to get a lot faster, processing power will need to get much cheaper, and storage costs will need to be sharply reduced. 2018 will see attempts to solve these major limitations.”

Alex Ma, who joined ScaleVP as an associate last year, had a lot to say about the near future of cryptocurrencies:

“With the price of Bitcoin nearing $20,000 per coin and Coinbase taking the lead as the number one app on the App Store, many people are beginning to question whether we’re in a Bitcoin bubble,” Ma wrote. “Billions of funding dollars have poured into blockchain companies this year, and token sales in 2017 alone have amassed about $2 billion, already crushing last year’s token-sale total of $256 million. The seemingly undying hype of ICOs (initial coin offerings) is due for a market correction. Could 2018 be the year?”

Ma comments further, “As we move forward into 2018, there are a few developments in crypto-land worth monitoring:

1) Cryptocurrency adoption will continue to rise

Coinbase just became the #1 app on the AppStore and has more active accounts open than Charles Schwab. They’ve more than doubled their user base over the last 12 months. At that pace, Coinbase will have at least 30 million users next year—which will be more users than Fidelity. Estimates put awareness of bitcoin (in the US) at roughly 80 percent. Of that subset, only about 14 percent of the U.S. population actually own any today. Expect that number to go up.

2) Regulation

The race to regulate the cryptocurrency and the Initial Coin Offering (ICO) market will hit full stride in 2018. It is difficult to predict whether or not regulation will have a positive or negative impact on the industry, but regulators are moving in. Will it be the SEC or CFTC (Commodity Futures Trading Commission) that lays the hammer down? Perhaps both?

3) Institutional money, incoming

Most investors will start to diversify into other crypto-currencies beyond just “the big three” (BTC, ETH and LTC) on Coinbase. There will be a shift towards diversifying crypto-assets and managing investments the same way that investors look at more traditional assets and investing. Public markets are at all-time highs and interest rate environments have not been favorable. Expect to see institutional capital flow into crypto-assets as they look for returns.

Huge amounts of wealth will continue to be created and destroyed as crypto-mania continues to shake out. 2018 could be another action-packed year for bitcoin and crypto-assets, or the year Bitcoin dies for the 221th time.”

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