It’s not an overnight process. Mass adoption happens in stages. After closing out another strong performance week for Bitcoin and Ethereum, is it time to accept that the general public will soon be ready to embrace cryptocurrency as the exchange medium of the future?
Let’s examine where we’re at. There are five stages to mass adoption. The first is the innovators. These are typically the younger folks who recognize potential in new technology. Their risk tolerance is high, and they have the financial resources to gamble on something new.
Innovators inspire early adopters, the second stage. Bitcoin reached this stage in 2013 when Coinbase sold $1 million in bitcoin in a single month for $22 per coin. Shortly after that, service providers OkCupid and Foodler (now Grubhub) began accepting it for payment.
Stage three is known as “early majority.” This is where innovators and early adopters are joined by a select group of investors who put their weight behind the new concept. With Bitcoin, that means cryptocurrency hedge funds. We’ve profiled the top five in this category.
Digital Currency Group / Grayscale Investments
Founded in 2015 by Barry Silbert, Digital Currency Group is an early adopter with existing positions in Coinbase, Ripple, and Bitpay. Between 2016 and 2018, they invested in over one hundred cryptocurrency projects, with an average seed round of $3.24 million.
Digital Currency Group has backed some of the most well-known start-ups in cryptocurrency, including Circle, Blockchain, Kraken, Parity, and Ledger. Grayscale, a division of DCG that invests directly in cryptocurrency, reported an AUM number of $2.7 billion in 2019.
Grayscales Bitcoin Trust fund gained 300% in the first two quarters of 2019 and they reported that 84% of their investors come from the institutional space. Based on the phases of mass adoption, these numbers indicate that bitcoin is solidly in the early majority stage.
Digital Currency Group may be the first company in the space to hold an IPO, possibly as soon as next year. With heavy exposure in both Bitcoin and Etherium, that could be the push needed for public mass adoption. The valuation is projected to be over $4 billion.
Founded in 2016 by Olaf Carlson-Wee, Polychain Capital is another crypto-focused hedge fund with a divested interest in Bitcoin. They currently have just under $1 billion in cryptocurrency under management. That’s up from $591 million just five years ago.
What’s interesting about Polychain is that their crypto funds receive significant backing from VC firms. They’re known for bringing a number of large players together on early funding rounds, including a $200 million round with Sequoia Capital and Union Square Ventures in 2017.
Polychain has invested in Coinbase, Kik, and Celo, among others. They were profiled in Fortune Magazine at the end of 2018 as being the first crypto fund to exceed the $1 billion aum mark. Today, they are known as a crossover firm with traditional financing backing their crypto assets.
In 2020, Polychain has invested heavily into DeFi. On November 13th, they dropped $8.2 million into the Etherium-based token yearn.finance (YFI). They are now the 10th largest holder of the token and the largest overall crypto hedge fund in the world.
Founded as a traditional hedge fund back in 2003, Pantera Capital refocused their efforts ten years later to invest in crypto and blockchain technology projects. The move seems to have paid off, as they currently have over $700 million in assets under management.
Pantera Capital promotes itself on their homepage as the “first” US Bitcoin investment firm. Their Bitcoin Fund (PBF) was launched in July 2013 and is among the best performing investment funds ever across all asset classes. They are definitely all-in on Bitcoin.
As a pioneer in the crypto investing space, Pantera has recruited investors from multiple segments, including many firms outside of the typical blockchain universe. This is further evidence that Bitcoin is well on its way to mass adoption.
In July 2019, Dan Morehead, founder of Pantera Capital, predicted that Bitcoin would hit $42,000 by year’s end. That didn’t happen, but it opened at $18,165 this morning, up from $11,903 thirty days ago. We should see $25,000 in Q4.
Morehead also predicted a bitcoin value of $356,000 by 2021. With Paypal’s announcement that they would be launching their own bitcoin exchange next year, we could see a significant price move. Will it get that high? It will be exciting to watch.
Bitcoin hit an all-time high of $19,260 on December 15, 2017. They bottomed at $3530 a year later. Somewhere between those two dates, former Goldman Sachs partner Michael Novogratz put together a $100 million crypto hedge fund called Galaxy Digital.
Novogratz weathered the storm and continued to invest in crypto- related projects. Among them were Bakkt, BlockFi, and Ripple. He did this by reaching out to noncrypto backers, investing his own money, and listing the company on Canada’s TSX exchange.
Galaxy Digital can’t really be classified as an innovator or an early adopter, but they are part of the early majority that is driving mass adoption. By bringing in new players and putting his own personal assets on the line, Michael Novogratz is helping to move the needle.
Marc Andreesen and Ben Horowitz are well-known in Silicon Valley. The Menlo Park based venture capital firm has piloted IPOs for big name tech startups like Box, Groupon, Lyft, and Facebook. They’ve been around since 2009 and they manage over $7 billion in assets.
The fact that an established VC like Andreesen Horowitz has thrown its weight behind crypto and blockchain technology is a huge step towards mass adoption. Among other investments, they partnered with Polychain in 2018 to put $15 million into Dfinity.
Andreesen Horowitz has its own crypto investment fund called 16z that is worth over $300 million. That may not seem like a huge number when the firm manages billions, but its significant because this is a company not dedicated solely to crypto currency.
Blockchain is Disrupting the Digital World
The final stages of mass adoption are the “late majority,” which is the group that’s been watching but not quite ready to jump in without more evidence, and the “laggards,” those who jump on the bandwagon once innovative risk has sufficiently dissipated.
With institutions putting their weight behind it and custodians offering more ways to securely enter the market, Bitcoin is solidly in the early majority phase of mass adoption right now. Blockchain technology is the primary disruptor in the digital world, and awareness is rising.
Behavioral analysis from the Bitcoin blockchain shows that 60% of investors are holding bitcoin for a year or longer. In 2012, that number was 30%. This year alone, 8.7% of bitcoin has been taken off exchange and is likely being held for long-term use.
As Bitcoin phases into early majority and more value is transferred into its ecosystem, the volatility synonymous with this asset class should start to level out. That’s bad news for traders, but very good news for long term investors and late majority adopters.
Using Bitcoin to Diversify a Portfolio
Though it’s been labeled a digital “currency,” Bitcoin and other crypto assets like Etherium, are now being treated as a separate asset class. They don’t quite fit as a commodity, aren’t subject to inflation in the traditional sense, and are not influenced by general market fluctuations.
In a recent report published by Coinshares, the author states, “If we are to examine bitcoin in terms of its investability, we believe there is a necessity to classify bitcoin and its likely performance in a mature state, where investors are more settled as to its identity.”
This is important. Bitcoin won’t reach its mature state until it passes through the early majority stage of mass adoption. From a chart pattern perspective, we’ve already seen a decline in volatility this year, but maturity only comes when that levels further.
Bitcoin in 2020 and Beyond
Overall, the gains on bitcoin in 2020 are astronomical. On January 1st, it opened at $7,182. This morning, it was over $18K, a gain of 128.65%. Long-term investors who hedged their portfolios with just 4% in bitcoin experienced an extra 10% net gain this year.
Does this mean you should go “all-in” on crypto and ignore more traditional investments? Of course not. The technology is still evolving and nothing in the investment game is a certainty. There is, however, a good chance you’ll make some money on this in the next few years.
To learn more about bitcoin and cryptocurrency investments, review Tickeron’s Bitcoin articles in the “Cryptocurrencies and Blockchain” section of Trading 101. You can learn all about bitcoin, blockchain, Ethereum, Ripple, and the taxes and regulations related to them.