By Pyr Marcondes, Senior Partner at Pipeline Capital Tech.
“Token projects have to eat that sh*t every day’: Crypto VCs face a harsh reality in the bear market.”
Above is the headline of an important global economics publication, which, out of ethical respect for writing here in Exame, I will not reveal. But it is large, traditional, and respected, with an indisputable contribution to global economic journalism.
However, this kind of scandalous headline that clings to the moment as if it were a highly valuable work of art bothers me a lot. As a journalist, as an entrepreneur, and as an investor.
I singled this one out among several other headlines that, in recent months, after the scandals of funds like FTX and the ongoing investigation processes against Binance and Coinbase, two of the most relevant operations in the crypto sphere, lead their readers and audience to believe that the crypto world is going to collapse and has no future whatsoever.
Frankly, it’s disgusting.
I was a columnist for two years at Jornal Valor Econômico in the early 2000s, when the “dot-com bubble” burst, as it was called at the time (1999/2000), the stock market crash of internet companies, which had experienced significant expansion since their inception in 1995.
Well, I didn’t tire of writing article after article calling attention to the fact that it was a period of consolidation for a sector in the creation phase and that it would by no means be the end of the internet, despite what I read in national and international headlines at the time. Believe me, that’s what they were saying… that all those crashes would be a clear symptom that the internet wouldn’t last.
Today, we know how much stupidity there was in those predictions from analysts, economists, and journalists of that time.
Those headlines back then remind me a lot of the crypto headlines now.
Please, whoever happens to be reading this and has nothing better to do than read this right now… don’t believe this story.
At the time of the stock market crisis in the late 1990s, the preceding situation was a highly liquid and somewhat irresponsible market, macro valuing assets that didn’t even have revenue, solely because they were “internet.”
Something similar has happened in recent years with tech companies and startups. Overvalued. There, as now, we are facing the aftermath of a false boom.
There, as now, we were facing a moment that would be a quantum leap in our lives, including the economy and finance.
Today, the situation is as follows: all economies and the entire financial world will be digitized like never before in history. Crypto is one of the chapters of this structural and historical transformation.
The financial world will be completely disrupted, from end to end. And it will be entirely decentralized. In other words, programmable, traceable, and automated money on Blockchain platforms.
This is the basic structure of what is called DeFi, Decentralized Finance, or the decentralized financial market.
In this new environment, central banks do not act as gatekeepers of the financial market, and transactions are guaranteed by the technology itself.
DeFi has been growing. Just from October to November 2022, there was a 68% increase, with a volume of $97 billion.
As a Deloitte study reminds us about the crypto asset market: “When we talk about crypto assets, the first idea that comes to mind is bitcoin, followed by other token currencies. But the term ‘crypto asset’ encompasses much more than just cryptographic payments.”
Crypto is a token, and the entire economy will be tokenizable.
Robson Harada, CMO of Mercado Bitcoin, who certainly understands much more about all of this than I do, sent me the following text: “The crypto market is facing more challenging obstacles in this cycle compared to previous bear markets. This is expected, as the agenda is more developed, it moves significant capital, and most importantly, it has high potential to evolve and disrupt an entire traditional financial system. It is natural that the sequence of events leading up to FTX reduces confidence and appetite among the affected parties. At this moment, we have a polarity between a regressive agenda from the United States and a progressive agenda from Europe and relevant countries like Brazil. I believe that the progressive bloc will push and pressure their peers to act in favor of the crypto segment. The benefits that blockchain technology can enable, optimizing chains in different verticals, is an irreversible path and a necessary evolution.”
An irreversible path is the expression that I would highlight here.
There is a structural issue of regulation in all of this, still ongoing. It is an unregulated market, and the entire scenario we observe is part of its consolidation, not the opposite. It is like man discovering fire and getting burned by it here and there in prehistory. We are living in the prehistory of DeFi. Crypto as well.
Since I mentioned Deloitte, here’s another quote from the consulting firm: “Security token is the future of financial security.”
As blockchain technology emerged from the field of data science, many of the terms used in cryptocurrencies and tokens are similar to those used in the tech world. The term “token” is one of them. In data science, a token is a value, like a randomly generated number, assigned to confidential data to protect the original information. Therefore, in a blockchain, a token is a number assigned to the data stored on the chain. Giving a token to an asset is called “tokenization.”
As an investment asset, a security token is a digital asset that represents ownership or other rights and transfers value from an asset or package of assets to a token. In simple terms, security tokens are the digital form of traditional investments, such as stocks, bonds, or other securitized assets.
Crypto is a security token.
Tokens still have a long way to go before they can be considered mainstream, but several countries and central banks are now swiftly creating regulations for them (as is the case in Brazil).
All these assets are digital assets.
The future doesn’t depend on headlines to happen. Most of the time, it happens despite them.
By Pyr Marcondes, Senior Partner at Pipeline Capital Tech, originally published on Exame.