2022 is coming to an end and our staff at Bitcoinist have decided to launch this Crypto Holiday Special to provide some perspective on the crypto industry. We’ll be talking to multiple guests to understand the highs and lows of this year’s cryptocurrency.
In the spirit of Charles Dicken’s classic A Christmas Carol, we will look at cryptocurrency from different angles, look at its possible trajectory to 2023, and find common ground between these divergent views of the industry that can support the future of finance.
Ben Lilly: “(…) for the basics… Nothing has changed. If anything, builders are building faster than ever before. All of us veterans know that right now are the most productive weeks you can have in cryptocurrency. This is a blessing for those who can endure such bad days.”
Now, for the bonus round, we spoke with the company’s co-founder, Ben Lilly Jarvis Labs, an on-chain analytics and token design firm that tracks the cryptocurrency market. Lilly offered his thoughts on the current state of the industry, why the Bear Market should be used as a time to build, and why the emerging class is maturing. Here’s what he told us:
Q: What is the most significant difference for the cryptocurrency market today compared to Christmas 2021? Apart from the price of Bitcoin, Ethereum and others, what has changed from that moment of euphoria to today’s perpetual fear? Is there a drop in adoption and liquidity? Are the basics still valid?
A: In December 2021, we were discussing whether the US Federal Reserve would raise interest rates against the backdrop of inflation. What we’re seeing a year later is a strategic push to say they’re going to take two steps, and instead they’re going to take three steps. This not only hurt the markets but also ensured that the markets could not find a solid base to build momentum.
This mindset led to a fast-paced routine. Downwind effects were the dollar because the currency was an asset to hold. Most everything else lost value against the dollar.
Many people like to say that Bitcoin, Ethereum and other assets are “losing value”. This is a misnomer. We value everything in US dollars and these assets have lost a lot of value against the dollar.
What many people are slowly realizing is that most participants in the cryptocurrency markets are and have been speculators. This, in my opinion, is very unfortunate. And something I’m looking at to better track with data.
The decline of the greats (and the closing of stores by many market makers) has left a significant gap in liquidity. We know it well. It is very difficult for market makers to operate smoothly in some secondary exchanges as the books are quite dry. Our team has been running autonomous trading systems for half a decade now, as we understand it well when we start researching the market. Customers are asking us now more than ever to create marketplaces, so our team has begun to strengthen these operations for 2023.
As for the basics… Nothing has changed. If anything, builders are building faster than ever before. All of us veterans know that right now are the most productive weeks you can have in cryptocurrency. It is a boon for those who can bear such bearish days. I see some really impressive technological solutions happening right now. Our team is currently testing some of them and looking to expand our functionality on the chain in the coming months – something we’ve been exploring for years now. For us, this is proof that the fundamentals of the industry are getting better.
Q: What are the dominant narratives driving this shift in market conditions? And what should be the story today? What do most people overlook? We’ve seen a major cryptocurrency explode, a hedge fund thought to be untouchable, and an ecosystem promising a financial utopia explode. Is crypto still the future of finance or does society need a new vision?
Answer: Onchain transactions are becoming more desirable than ever. Our customers push us in this direction, which shows us that the mindset of trust and validation is becoming more prominent. I love hearing that and I hope we push everything we do to go full chain in the coming years.
I’ll put it this way, I never imagined our team would be looking at a zero-knowledge technology to run a portion of our operations. Simply put, the vision is the same, just more crystallized – a process that will continue over the years.
Q: If you had to pick one, what do you think was the defining moment for cryptocurrency in 2022? And will the industry feel the consequences in 2023? Where do you see the Christmas industry next? Will it survive this winter? Mainstream is once again announcing the death of the industry. Will they finally get it right?
A: The highlight was GBTC sliding into negative NAV.
As the tide breaks in 2022, we’ve learned what’s really going on in the cryptocurrency waters, and we’re seeing a lot of explosions stemming from the Greyscale Trust product.
Three Arrows Capital, Genesis, DCG, BlockFi, Voyager and others were all affiliated with the Trust, and as the value of the Trust was greater than the value (minus NAV) of all outstanding shares, market dynamics caused spot demand to decline. April 2021.
In this regard, timing and what the US Federal Reserve did with interest rate hikes was like a double-edged sword with both edges pointing in the same direction. Higher rates and lower spot demand for the toxic Grayscale product meant that the sword of the bear market was twice as sharp.
As for 2023, I still think some of the worst is yet to come. I am not necessarily referring to price here. I’m talking about not having enough cash to see operations through the winter. Revenues are down, new entrants to cryptocurrency are down. I think this is good because it frees the industry from poorly managed businesses, but it will cause some headline scares for the industry as companies close their doors.
From my point of view, the industry will not end. Those with capital have plenty of runway. Even those without perennial runways are being worked on by very enthusiastic builders. By the end of 2023, we will see the market revive with great excitement. I don’t believe it’s going to be a full blown bull market by any means… It’s going to be more about projects carrying out what they’ve been building for years. You give a bunch of crypto developers a year to build, the results are spectacular.
Q: And of course we have to ask; many argue that the collapse of FTX has returned the industry to the bear market of 2018. Going back to the Initial Coin Offering (ICO) era, the so-called “Wild Wild West” days of cryptocurrency, what do you think of the idea and where do you think the industry is right now? More importantly, what is Jarvis’ role in this context and where do you aim to be in 2023 and beyond?
A: Cryptocurrency matures as we all age. You ask anyone who has had ups and downs if they went back to a time when they were a younger version of themselves… Most will say they are wiser and often failures are how we truly realize our potential. Crypto is the same.
We’ve discussed before that onchain solutions are in demand more than ever… Well, the industry has gone bad in centralized entities like FTX, whose sole purpose was to make money and not contribute to the space.
Space will get smarter going forward. We hope that Jarvis Labs can help foster this way of thinking. Our team has been involved in many verticals. We have teams building software solutions, new metrics, dashboards, token designs, algorithms, and a few other things we’ll reveal soon. But if I had to keep it in one role, it’s to help everyone hold crypto to a higher standard. We can be better. Let’s be better.