What’s the Product/market fit for crypto? Crypto Trading.
Guesser, Bitfinex, Hydra ICO, Coinshares mining, BottlePay, Seba Bank, ING & Solaris custody, Amun ETP, Georgia Mining and Upvest raising
|Etienne Brunet||Dec 15, 2019|| 1|
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🕵️ What’s the Product/market fit for crypto?
Most generalist VCs and institutional investors are still pondering the question: what will be the real product/market fit (PMF) for crypto? What’s the killer app beyond speculation for crypto? Is crypto / blockchain still a technology looking for a problem to solve?
I am always a bit confused when someone asks these questions. Crypto does not mean anything specific. It includes a wide range of ‘digital assets’ ranging from Bitcoin, Ethereum, Privacy Coins, Protocol layer (e.g. Dfinity, Nervos etc…) and other utility tokens offering new ways to exchange data over the internet as well as stablecoins.
So the question could be rephrased to - what’s the product market fit for each of these assets?
Currently, Bitcoin is the most advanced digital asset in terms of its PMF. It has a large user base (at least 20m+ users), a strong ecosystem of market participants including miners and exchanges and real-world use cases.
Unlike most tokens, Bitcoin has grown out of the simple use case of ‘speculating on magic beans on unregulated exchanges’. There are still volatility and a long path to price discovery but the real world use cases have evolved. People use orange coins.
Bitcoin is used as a Store of value: see the AuM of Grayscale, Coinshare or the AuM of Coinbase custody, Means of payment: see the transaction volume on Paxful, LocaBitcoins or growth of BitPay and BTCpay and Unit of account: Ask any ‘crypto traders’ in what unit they trade and they will say in BTC, Sat is slowly becoming the unit for internet money thanks to lightning.
The mining industry has created a real need for financial products ranging from derivatives futures and options (BitMEX and Deribit) and Lending/borrowing (see Genesis). The miners landscape is also evolving with new entrants like Crusoe and Layer1 among others.
While everyone is asking ‘What will be the blockbuster game for crypto?’ I think we already have it: Crypto trading. The ease of use and access of crypto exchanges has created an entire new industry combining trading, betting and gaming.
If you have ever used a brokerage account you will then appreciate the difference between legacy brokers like TD Ameritrade and crypto exchange like BitMEX. You can onboard on the latter in few minutes, have access to derivatives, almost institutional level tools for free, deep liquidity and strong volume.
This goes beyond the classic day trader or former traders. Quant traders are moving en force, ‘This market has almost no fundamental and is generating tremendous amount of data.’
Ask your friend at top quant funds what they do before and after work, the chances are that they are making market or running stat arb strategies. Why? It’s because crypto trading is the biggest trading market since the ‘00
The industry is professionalising super fast and in few years, most of these small trading shops will be outcompeted by large funds. In the meantime, a generation is learning about trading and financial markets. Capital Markets is the coolest thing is SF. Sorry they call it DeFi but it’s really Capital Markets.
Crypto trading is one of the biggest games in the world in terms of dollar value and user number.
Moving on to other assets, Ethereum killer app was ICO, allowing anyone to raise funding from everyone in few clicks. The regulators have now stepped in and STO is becoming a new thing (see Blockstack). Meanwhile, Binance has created IEO with some positive results.
Beyond fundraising, Ethereum is seeing few killer apps around DeFi from Maker DAO to Compound. However, all of these apps remain very complicated for most users and answer the questions ‘What do I do with all these ETH tokens that I don’t want to sell yet?’ The applications will broaden with the integration of stablecoins like USDC and improvement around latency and collateral level (ie. 150% collateral level is nuts) but it’s early, really early.
Protocols, utility tokens and companies are facing technology and regulatory hurdles impeding their go-to-market for mainstream use cases. e.g. Custodial wallets are money transmitters. How does it impact unregulated central exchanges? or Lightning wallet/node?
So what’s beyond crypto trading? Well, we need more usable protocols, more developer infrastructure tools to build crypto products more easily, more on-boarding solutions and more education.
Education in the crypto ecosystem is one of the most underrated items. Crypto folks love using lingos. The level of opacity makes new entrants reluctant to move into the space as they think it will require them a long time before being able to build anything. Or they just think it’s a scammy industry...
On the other hand, some products without tokens are taking off. I am pretty astonished by the growth of Brave browser (I’m not talking about their BAT Tokens) with their 10m+ monthly active users.
Maybe we just need more application that just does a 10x better job than current offerings and with a privacy first element. Maybe this is the next killer app for crypto. Building great products that people want rather than using complicated and unproven technologies that people don’t understand or have little to no use of.
Thank you for reading this far. I would love to hear your views.
🐦 Tweets of the week
🤹 Startups News
Crypto exchange Bitfinex has once again questioned the New York Attorney General’s oversight authority in an official response to the ‘reply brief’ filed by the NYAG on December 4 to the Supreme Court of the State of New York. [Link]
Hydra Darknet Marketplace announced plans to launch a transnational decentralized venue for the sale of prohibited goods (e.g. narcotic etc..). 49% of the project will be put up for sale reportedly via a darknet ICO. [Link]
Coinshares released their Bitcoin Mining network December 2019 updates, have a look
🎁 Startups Product & Partnership
Cryptocurrency exchange OKEx is launching cash-settled Bitcoin options trading on Dec 27th. This is a pretty big news as options is one of the few products with a handful of entrants and large market potential. Currently, Deribit is one of the leader and institutional players such as CME and Bakkt are preparing the launch. [Link]
The Bottle Pay service, which allowed users to send Bitcoin (BTC) via social media accounts, announced it would be shutting down due to Anti-Money Laundering (AML) regulations coming into effect from Jan. 10, 2020. [Link]
Switzerland-based cryptocurrency bank SEBA has expanded its services to nine new countries. The bank is now fully operational for institutional clients and accredited investors in Singapore, Hong Kong, the United Kingdom, Italy, Germany, France, Austria, Portugal. [Link]
Luno Malaysia, one of the only three regulated cryptocurrency exchanges in the country, is set to list XRP on its platform [Link]
Amsterdam-based bank ING is reportedly developing cryptocurrency custody technology. ING reportedly said that it “sees increasing opportunities with regard to digital assets on both asset backed and native security tokens.” [Link]
Meanwhile, another bank is launching another custody initiative for digital assets: SolarisBank’s newly established subsidiary, Solaris Digital Assets GmbH, will provide clients with an application programming interface (API)-accessible platform, which gives access to the full range of solarisBank’s digital white-label banking services [Link]
Footwear giant Nike patented shoes that are tokenized as a non-fungible token (NFT) on the Ethereum blockchain, dubbed CryptoKicks. The token would be “unlocked” with the purchase of a corresponding physical shoe by linking a 10-digit shoe identification code with the owner identification code. [Link]
🏦Regulations / Universities
Sweden's Financial Authority Approves Swiss Crypto ETP Provider Amun. Currently Amun manages a handful of crypto ETPs traded on Switzerland’s principal stock exchange SIX. With this announcement, the company can market more freely to investor in all of Europe competing directly with Coinshares. [Link]
The IMF recommends Georgia to be more transparent when accounting for crypto mining. Georgia’s income from cryptocurrency production is officially unknown. Georgia is currently ranked 4th in digital currency production from crypto mining, and they are home to Bitfury, one of the biggest Bitcoin mining companies in the world. [Link]
The Riksbank, Sweden’s central bank, said that it would partner with professional services company Accenture to create a pilot platform for a digital currency dubbed the e-krona. [Link]
“The primary objective of the e-krona pilot project is to broaden the bank’s understanding of the technological possibilities for the e-krona.”
This in line with the view from Mrs. Christine Lagarde, president of the ECB [Link]
“My personal conviction on the issue of stable coins is that we better be ahead of the curve. There is clearly demand out there that we have to respond to.”
Meanwhile, the government of Switzerland is not keen on issuing a digital currency for retail use but sees some benefits of a wholesale digital currency. [Link]
💰Fundings & M&A
Germany-based startup Upvest, which helps companies tokenize financial assets on blockchain, has raised €7 million (~$7.8 million) in Series A funding. The round was led by Notion Capital, with participation from Partech Ventures and Holtzbrinck Ventures. Upvest aims to help companies to tokenize “the €10 trillion” alternative investments asset class [Link]
Everyone is talking about San Francisco as the epicentre of everything in crypto. Well, I wanted to shed light on Europe and show how exciting the ecosystem is.
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