Hello and welcome to the weekend! We were successful. Given how exhausted everyone seems to be on the phone and Twitter, I believe this is a stretch. However, we manage to beat the working days back, which allows us to sit back and enjoy ourselves for a bit of a moment of respite. Yes, we’re going to speak about cryptocurrency today. Rejoice!
The rush to raise money for cryptocurrency’s future is undoubtedly pricey.
I’m pleased with the speed with which Coinbase has invested funds in other startups in the broader blockchain sector since its founding in 2013. As a public corporation in the United States, it can invest relatively modest amounts (compared to its income base) in acquiring both ownership and information access in startups, giving it early-warning data on what’s hot in the market. Given that Coinbase is an evident incumbent – and, to some extent, a gatekeeper – in the cryptocurrency industry, its investments make a certain amount of sense.
However, there is a difference between investing and not investing. Moreover, it looks that the recently announced FTX fund is something more aggressive than what Coinbase has done, even though Coinbase has a very rapid cadence of transactions.
According to interviews, FTX’s crypto fund would have a total value of around $2 billion and might be distributed as early as this year. Those investments are being made at a breakneck rate, possibly reminiscent of how swiftly a16z put its recent $2.2 billion cryptocurrency fund to work.
I have a couple of questions:
Why does the cryptocurrency market need such a significant sum of money when its user base is limited compared to the more excellent Internet?
What is the purpose of utilizing so much money to fund cryptocurrency?
These are questions that are intertwined. They boil down to a fundamental misunderstanding about why it’s so challenging to produce valuable products in the cryptocurrency market. Coinbase and FTX are two cryptocurrency exchanges that live outside the crypto realm, transferring money back and forth between the current economy and what may be its future. The fact that they are investing is commendable. Still, the amount of money they are ready to invest, along with the amount of money that conventional venture capitalists are also pouring into blockchain firms, leaves me perplexed as to what they are spending it all on.
Ethereum and Bitcoin, the two most essential blockchains, are well-established and not particularly new (the Ethereum whitepaper was published in 2013, and the Bitcoin whitepaper was published in 2008); stablecoins are in existence and have several well-established players, and a significant amount of capital has been invested in NFT marketplaces and a few crypto games. Some of them have even managed to attract a small number of players. However, when we look at the amount of money going into the sector about what we can see in terms of valuable outputs, it seems somewhat focused.
According to Institutional Investor, a total of $32.8 billion was invested into “crypto and blockchain technology enterprises” in the past calendar year. Possibly many amazing things developed with that money will be released soon. However, even after more than a decade after Bitcoin shouted “Hello, world,” I still don’t utilize any blockchain-powered applications or services daily. Unless, of course, I’m fiddling with a particular aspect of the cryptographic realm for research reasons.
In addition, I spend much more time online than I would like to admit! Perhaps the new FTX fund will be the catalyst for developing a mass-market blockchain product that is more than just a speculative investment vehicle. I guess we’ll have to wait and see.