Looking Back, Looking Forward, Looking Laterally — Part Two. What will spark the next bull run?

Following my previous article on HT I was contacted Huobi Research, and have had the privilege of gaining early access to their extremely comprehensive H1 2018 Global Blockchain Industry Strategic Overview in an exclusive sneak peak. I will break down the contents and deliver what I believe to be the most interesting things in 3 parts, so as to share the knowledge with you all. This is part two of three. Read part one here.

So, we’ve evaluated the overall landscape and compared the 2017 bull run to the previous two, so the next step is to look forward and figure out what exactly is going to take us back to the new highs that many aspire to.

According to the Huobi Research report there are six distinct drivers for the next crypto asset bull run, namely:

Financial Penetration: Crypto finance will penetrate traditional finance

Application: Specifically designing applications and blockchains for individual use cases

M&A: Acquisition of quality internet applications through crypto assets

Users: The bl_ockchain user base will keep growing_

Generation: Average age of users continue to increase

Gender: More women are expected to enter the market, which is currently largely male

In will briefly delve into each driver and relay the rationale behind them here.

Financial Penetration

The biggest impact of crypto assets on traditional finance lies in the payment sector, especially cross-border payment and the way firms conduct businesses. Using crypto assets like Bitcoin as media of exchange can significantly reduce the time and expense in cross-border payments whilst increasing efficiency, and distributed ledger technology and smart contracts can be widely adopted in applications such as clearing and financial back office (something MATRIX AI Network has expressed interest in), helping to reduce the cost of operation and compliance.

The advent of the cryptofinance era does indeed seem to be upon us. More and more cryptocurrency projects and firms are taking different approaches and we are seeing huge investment bank backed firms such as Circle making big strides with new products, as well as projects like Stellar, Ripple and FUSION bringing unique use cases and solutions to the table with impressive stakeholders in the world of traditional finance. It should be clear to readers that the bridging of this gap will certainly inject a new life into cryptocurrency, and given that finance is the lifeblood of the world’s strongest economies, moving some of that capital from pure finance into cryptofinance will make a huge difference to the landscape.

Application

Huobi Research closely tracked DApps on built on Ethereum, and the ones with the most daily active users thus far (not including decentralised exchanges) are blockchain games. There are yet to be any ‘serious’ dApps adding value to every day lives in ways that applications like Facebook and Twitter do for some. As current blockchain technology is still in the early stage, most of the blockchain applications are premature and limited in functions. Huobi identifies that the main barrier for adoption of blockchain applications now is that the blockchain is coming before the use case, and that “use cases first, blockchain second” is the right way to embrace blockchain. They express the importance in finding common needs and real use cases, then add blockchain as a fundamental technology to optimize user experiences within these cases.

Mergers and Acquisitions

In traditional financial, M&A is one of the main drivers of a project’s market cap. In a distributed crypto market, the circulation of new crypto assets is similar to an IPO, which in parallel is also the main driver currently for the crypto market at present. With the ongoing maturity of blockchain infrastructures, Huobi expects to see M&A techniques being applied in the blockchain in the future; great numbers of blockchain platforms, to supplement their own dApp ecosystems, will start to acquire quality internet applications, both centralised and decentralised, which will in turn provide new exit strategies for budding internet start-ups. This is already happening on quite a large scale as we have seen in the news recently — the cryptocurrency giant Coinbase has made multiple acquisitions this year in different application areas with Earn.com and Cipher Browser being the most recent. I share the opinion of Huobi Research in this respect and do believe that M&A will be a prolific driver in the cryptocurrency space not only for companies like Coinbase but also for projects. I envision that when the space is more mature and platforms begin to act truly as decentralised autonomous organisations we will witness the first ever distributed company acquisitions.

User Growth

Figure 1: Number of Active Bitcoin Address vs Time (in thousands) (Huobi Research, 2018)

Currently, there are over 24 million and 32 million wallet addresses for Bitcoin and Ethereum respectively. Total number of blockchain users is expected to be around 20 million worldwide, less than 0.3% of global population. According to We Are Social and Hootsuite, there are over 4 billion internet users globally in 2017, with only 2% penetration of blockchain. Huobi Research believes that the growing of the total user base will stimulate the market activity, accelerate the development of community, thus driving up the crypto market. Moreoever, with more and more institutional investors regarding crypto assets as a new asset class to diversify their portfolios, market depth and capacity will be significantly impacted. We have seen this effect in action during bull runs too. Figure 1 displays the number of active Bitcoin user addresses as a function of time, and the trend is clear. Historically, more users begets greater prices.

Generation: from younger generation to the masses

Figure 2: Age distribution of BTC community (Huobi Research, 2018)

Up to now, cryptocurrency has by some been seen as a rebellion. A rebellion towards the establishment, towards the ‘boomer’ generation by youth. Though this is true in some respects, in order to take over the world and reach full potential, cryptocurrency will have to be intergenerational, and the positive news is that this is happening. According to the latest survey conducted by Huobi Research, 39% of the users in the Bitcoin community are between 25 and 34 years old, and 55% of the users in total are under 35 years old, decreasing from 60% in 2015 announced by CoinDesk. Huobi posits that crypto assets will become more and more widely accepted by the masses in the future, rather than a concept that only resonates among the younger generation. More middle-aged individuals with higher risk tolerance and greater spending power will look to crypto assets as a new asset allocation vehicle, and dApps targeting users at various ages will also appear.

Gender

Interestingly, the final driver considered by Huobi Research is gender. According to survey by the firm, currently about 17% of the bitcoin community users are females, which represents a 7% of increase from 10% in 2015, announced by CoinDesk. Huobi Research believes that female investors are typically more cautious and prefer sustainable and longer-term growth, and that they have more general spending incentives and as such can create new application areas for dApp developers to look to, such as online shopping, where females are typically greater represented than males.

In sum, Huobi Research asserts that the crypto market will experience a paradigm shift from “investment driven” towards “investment + application” driven. Various use cases and demands will be tokenised on-chain and this will be reflected in market capitalisation of cryptos. The six drivers described above will each in their own way contribute to this shift, and it is my belief that the Financial Penetration, M&A and general User Growth will be the main three drivers.

Taking these thoughts into account, we must note that the crypto assets do not exist in a bubble. Every one of those drivers will have within them features which will be regulated by governments and overseers, and as such, careful attention must be paid to the regulatory landscape to evaluate which drivers are most likely to allow projects to flourish in the near future. Part 3, Looking Laterally, will delve into the increasingly pivotal regulatory landscape, and provide an insight into what developers, investors and users must be aware of when attempting successfully navigate this space.

The full report being discussed will be released first exclusively to attendants of Blockchain Festival Vietnam, and you can get 50% off when buying tickets with code WRITE50.