In the crypto bull market of late 2017, when tokens reached a valuation of tens of billions of dollars, blockchain networks comfortably surpassed the valuation of commercial companies in the cryptocurrency ecosystem.
At the time, for venture capital investors, direct investments in digital assets and cryptocurrencies seemed substantially more profitable than early-stage funding rounds in startups like Coinbase, Binance, and Circle. These companies have since become behemoths in the cryptocurrency sector, achieving multi-billion dollar funding valuations with profitable and stable business models.
Are Crypto Startups Better Investments Than Blockchain Projects?
In November of last year, retail traders and individual investors triggered an unforeseen short-term rally of cryptocurrencies, allowing the market to collectively reach a valuation of over $800 billion.
— CNBC’s Fast Money (@CNBCFastMoney) November 14, 2018
As of current, the vision of mega-successful crypto companies like Coinbase and Binance is quite clear; to improve the adoption of digital assets and strengthen the infrastructure of the cryptocurrency exchange market.
To institutional investors and large accredited investors, indirect investments in the crypto market are more appealing, partially because blockchain projects, decentralized initiatives, and initial coin offerings (ICOs) have been struggling to remain relevant and to establish a clear vision.
“Many crypto projects that raised money through an ICO face massive challenges to stay relevant and create real purpose. for now, our collective hopes and fears are expressed as speculative price moves. projects don’t die the way companies do, and the arc of time is long,” Demirors said.
Given that institutional investors and venture capital firms favor new companies building infrastructure rather than digital assets with unproven business models, in the short-term, companies are expected to outperform most projects in the global market.
“Most investors aren’t going out and buying crypto directly, nor will they do so anytime soon (sorry) that ‘institutional herd’ is getting exposure through existing investment vehicles that they know and understand (even if the assets are new and strange) more and more traditional financial institutions are looking at crypto as a way to: 1. create new revenue streams 2. play ‘innovation’ theater 2. build enterprise value.”
The majority of tokens in the market have also failed to maintain active GitHub repositories, with low double-digit code commits recorded last quarter and hundreds of daily on-chain transactions.
Could the Trend Change?
In the long-term, as the mainstream opens up to decentralized systems and institutions begin to see value in blockchain projects, Demirors stated that a trend reversal is inevitable.
“If the next five years are anything like the last, expect value to flow from centralized corporate entities to less centralized networks and applications. we can’t pinpoint when that shift will happen, but here at CoinShares- we believe it’s inevitable.”
There exist a few key factors that could drive an increasing amount of investment in the blockchain space. In the upcoming months, if major markets like the US, Japan, and South Korea establish clear guidelines to regulate and govern the ICO market, it could open a regulated channel for institutions to invest in the market in a secure and stable manner.