Will blockchain explode? Investors will be in trouble in 2017

Rage Review : 2016 witnessed the significant development of blockchain technology and its applications. At the beginning of the new year, Michael Terpin, co-founder of BitAngels, made a bold prediction on the development of blockchain in 2017, believing that 2017 will continue to be a year of blockchain development. If investors want to profit from it, they must understand the basic knowledge of the industry and grasp the development rules of the industry as soon as possible.

Translation: Flora

Looking back at the year 2016, blockchain has experienced both success and failure, and has been subject to controversy.

But 2017 will still see the technology grow. Of course, there is still the possibility of catastrophic events (which have happened more than once in the short life of the blockchain space), and the development of blockchain will be parabolic.

So what does it take for investors to discover the dynamics of this developing industry?

First, they must understand the basics of blockchain, which I have divided into three categories (Bitcoin, other public chains and consortiums, and private ledgers).

Here are my guesses on how these three types of technology will develop in 2017.

Bitcoin

When David Johnston and I founded BitAngels three and a half years ago, Bitcoin was still a very new thing for traditional investors and had just experienced one of the most turbulent tug-of-war in our history, with the price soaring from $13 in 2013 to $233 and then falling back to $50.

In our early days, the price of Bitcoin had recovered to $120, and there was a lot of excitement in the industry that the price of Bitcoin would rise again before the end of the year. One of the investors, Vinny Lingham (the new CEO of blockchain startup Civic), made a bold guess when he attended our first meeting that the price of Bitcoin would reach $1,000 in December. He was absolutely right.

In December 2016, the price of Bitcoin rose sharply, far exceeding that of 2013.

Long-term Bitcoin investors have seen it all before, but in my opinion, there is still a lot of room for improvement in the blockchain ecosystem.

The pure equilibrium of supply and demand that caused widespread market frenzy still has value, but the reliance on a single exchange like Mt. Gox no longer exists. With the emergence of multiple independent exchanges backed by venture capital firms and supervised by regulators, exaggerated prices are no longer likely to occur.

I have made the following predictions for several important trends that will emerge in Bitcoin in 2017:

1. The 1% of investors will finally start taking action

Knowledgeable family offices have been investing in Bitcoin since 2013, when Barry Silbert offered a Bitcoin investment trust to accredited investors (when the price of Bitcoin was just over $100).

The service is publicly listed as GBTC, which is not technically an exchange-traded fund (ETF) but does not rely on holding Bitcoin and is in fact traded at a premium (one share is worth 0.1 Bitcoin).

In March, SeekingAlpha called it the “Dumb Investment of the Week.” Both Bitcoin and GBTC have more than doubled in price since then.

2. The first mainstream Bitcoin exchange-traded fund (ETF) is about to be launched

At a panel in January 2014, I boldly predicted that three things would need to happen for Bitcoin to go mainstream, one of which was an exchange-traded fund on the Nasdaq or New York Stock Exchange (NYSE). After that, stock investors could easily benefit from buying a gold or silver ETF. (The other two things I listed were Bitcoin debit cards and a Bitcoin exchange that can be used in 50 countries, both of which will also be available this year.)

The Winklevoss Bitcoin Trust is expected to be listed on the Nasdaq this year.

3. The war on cash will directly lead to further price increases

As new governments in countries like India, Venezuela, and Pakistan abolish their largest paper notes (in India’s case, that’s just $7, and in Venezuela it’s even smaller), citizens of these countries are looking for ways to convert their cash into hard assets: gold, silver, and Bitcoin (the only currency that is both a hard asset and a digital currency).

While cash has not been phased out, curbs on capital outflows (China) and hyperinflation (Venezuela and much of Africa) have caused citizens who cannot afford euros or dollars to place their hopes on anything else that depreciates at a slower rate than the currency itself.

For a while, Argentines even chose to buy stereo equipment as a way to store value.

Unlike consumer goods of the past, Bitcoin does have the potential to appreciate in value and is more liquid than a DVD player.

4. Bitcoin prices will continue to rise

My personal prediction is that the price of Bitcoin will reach $2,200 by the end of 2017. If certain currencies collapse, the price of Bitcoin will rise even higher and make significant progress in those markets; but if those markets remain stable, the price of Bitcoin will fall.

But I believe that the price of Bitcoin at the end of this year will not be lower than it is now.

Public Chain

Some investors and business users are still confused about the difference between public and private blockchains.

For example, Ethereum has long been considered a blockchain solution different from Bitcoin, which is entrenched in existing ideas and regulated. As a public blockchain (not privately controlled, and asset value is usually traded on public exchanges), Ethereum faces similar regulatory issues as other virtual currencies such as Bitcoin (KYC, AML, MTL, etc.).

Public chains also face other issues such as security and trust.

Here are my guesses on the development trend of public blockchain in 2017:

1. Initial Token Sales (ICOs) will continue and increase, showing a diversified character

Token crowdsales (commonly known as “initial coin offerings” (ICOs) but preferred by lawyers) began about 2 years after the original “altcoins” appeared. (BitAngels was the largest investor in the earliest ICO, Mastercoin (now called OMNI), which raised $600,000 in August 2013).

In June 2014, Ethereum became the first big winner of the ICO market, both in terms of the amount of money raised ($18 million, while Bitcoin was only $600) and the scope of its rise in value (almost 70 times the ICO price of Bitcoin 0.0005).

Maidsafe, Factom, and Storj all completed successful ICOs in 2014. Augur was one of the few big winners to complete its ICO in 2015 (a tough year for both Bitcoin and ICOs).

The DAO, Waves, Lisk, FirstBlood, Golem Network, and Iconomi all raised huge rounds in 2016. Some, but not most, saw good returns from their ICOs (Lisk and Augur saw the best appreciation from their ICOs after they began trading in 2016).

This development momentum will continue and show signs of accelerating as long as:

1. The average amount of money raised by ICO projects is close to the minimum amount raised by the initial sale (the sheer number of ICOs will increase this complexity)

2. ICOs are still a faster way to raise seed-stage innovation funds than traditional angel investors.

3. Regulators, especially those in the United States, will continue to "wait and see."

There are at least 35 upcoming or already ongoing ICOs on ICO-List.com’s 2017 list. According to my predictions, at least 200 ICOs will be launched in 2017.

2. Caution will have a certain impact on innovation

Fear and greed are two of the main drivers of the market. The reason why The DAO’s infamous ICO raised a staggering $160 million (about 9 times the amount raised by Ethereum) was due to the fear of missing out (FOMO) and the narrative that “everyone could get their money back” was too good to be true.

What followed was a hacker attack, a system split, the failure of The DAO’s first transaction, and Ethereum has yet to fully recover.

In 2017, we will see exciting and innovative uses of public blockchains, with ICO projects not only raising awareness among investors but also raising funds for public blockchains.

Some will win in fundraising, the bar will be raised, and the value of teams that track the founders (no more anonymous developers) will increase.

3. Not all blockchains will raise funds through ICO projects

Zcash has become the hottest topic of the year, but its funding is provided by private sources and continues to use mining as a large part of its distribution channel strategy. Other leading private currencies such as Dash and Monero have had certain similarities in operation since their launch.

Steem, a digital currency linked to a social media network, also became one of the top ten trading tokens in 2016 without launching an ICO project.

Private Chain

Private blockchains will continue to gain momentum in 2017, both from consortiums like the Linux Foundation’s Hyperledger and from venture-backed private companies targeting regulated industries such as banking, healthcare, insurance, and real estate.

The biggest question facing the private blockchain industry in 2017 is how successful it can be given the lack of available talent. Public blockchains have hired small teams of developers to innovate on already popular code.

For this reason, I believe angel investors will stay away from private chains.