In our previous article, we addressed our view about opportunities for blockchain technology in LATAM and why this region might be fertile ground for mass adoption. We now present our vision for the future of crypto, and why we believe that investing in the space now has the potential to generate outsized returns.

As we will discuss further in this article, there are some reasons to believe that:

1. The crypto market will experience a bull run, probably starting at the end of 2024/ beginning of 2025, which might contribute to the market momentum.

2. This cycle will bring a major improvement in infrastructure - enabling scale and the emergence of more accessible projects.

3. There will be opportunities created by the major valuation correction that the market has undergone.

The 2021 market cap peak - among many factors - was significantly correlated with Bitcoin. According to Bitcoin’s code, every four years there is an event where the reward per mined block is halved, thus reducing the incentive for miners and halving the inflow of new bitcoins. Ultimately it makes the currency more scarce, decreasing its inflation rate, and increasing its price in the long run. Based on that, Bitcoin prices tend to have an explosive appreciation in the fourth year of a cycle.

As shown in the graph below, despite some divergences, there has been a strong correlation between the price of Bitcoin and other coins. Thus, halvings tend to have an influence on the prices of virtually all other cryptocurrencies, given that BTC has the largest single coin market cap, and is the oldest and most well-known cryptocurrency, making any big fluctuations in its price a beacon, attracting - or driving away - new investors to the crypto market.

The last halving event occurred in 2020, which contributed to 2021’s higher prices. If this trend is taken to be a predictable phenomenon, it would suggest that the market is at the beginning of a new cycle and that the next halving event can be expected to happen in Mar/Apr 2024. In this sense, it might present an excellent opportunity to invest in this technology in the next 2 years, before the bull run.

With a bull market comes new users and a surge of developers entering the ecosystem. This is intuitive, considering that PR activity increases during this period, expanding the overall awareness about the topic and attracting new investors to crypto.

The number of crypto users has never been higher. In the last bull market - early 2018 - there were around 20 million unique addresses on the Ethereum network; today this value is 10x greater, showcasing the increasing momentum of crypto.

On the developer's side, a bull market creates a feedback loop. New and scaling projects increase the demand for more developers, which makes their salaries soar, attracting even more professionals.

Even with a bear market, this progress is not lost. As shown by the Electric Capital Developers Report, the number of Web3 developers remained at the same baseline during the last market cycle, between 2018 and 2020, indicating that new entrants in the ecosystem tend to stay.

Historically, a bull market attracts more developers that don’t go away with a bear market.

Furthermore, proportionally, Full-Time developers tend to stick more to the ecosystem, which is positive, since they are responsible for more than 3 times the amount of commits in open source projects than Part-Time and One-Time developers, thus helping to mature the ecosystem.

Regarding the number of active professionals in the industry, despite the relatively small number of Web3 developers when compared to Web2 - 23 thousand (only accounting for open source developers; the number of closed project developers should be bigger) vs. 31 million, about 0.07% -, the number of people working on this technology is clearly rising. Cryptocurrencies are among the top 5 areas of interest among developers: 59% of the world's developers – an estimated total of 31.1 million people– are using, studying, or interested in studying this field. It should be noted that almost 60% of current developers are familiar with the Javascript programming language, the basis for programming in Solidity, which is the Ethereum smart contracts language, lowering the entry barrier for new talent.

Beyond that, with the huge imbalance between supply and demand for blockchain developers, Web3 companies are choosing to train Web2 developers to code for Web3, a relatively fast process that takes from 6 up to 8 months, increasing, even more, the inflow of new talents.

Some of the most important companies on the crypto space were born on a bear market

Taking all of this into consideration, we believe that the momentum created within the ecosystem in the past bull runs will not be lost and should only contribute to the maturity of the technology, fostering the creation of new solid projects. For instance, in previous bear markets, we saw the emergence of big companies, such as Polkadot, Uniswap, Axie Infinity, DappRadar, among others, implying that good projects/teams are resilient and that projects with such relevance may be taking shape at this exact moment. From wild speculation to solid projects, Web3 is closely following Web2’s path, in which some of the best projects were forged in bear markets.

Usually, institutional investors are the major contributors to market cycles (please, refer to one of our previous articles), initiating a bull rally when investing heavily in a specific market or causing a bear market when leaving the same.

The table above, from ChainShares, presents an analysis of the flow of assets by institutional providers from 2017 until the end of 2022. It shows that during 2022 the crypto market had the lowest inflow of assets since 2019. However, as the macroeconomic scenario becomes less favorable to fixed-income assets - which is expected, according to most forecasts, a decrease in the Fed’s interest rates in the medium/long run -  prices may rise again, as institutional investors double down on the market.

Now, looking through the Venture Capital (VC) lens, there was a major increase in the number of investors seeking crypto opportunities. Most VCs committed to the thesis believed in crypto as a new computational paradigm and as an opportunity to solve important problems.

According to Cointelegraph’s Blockchain Venture Capital Report released in 2021, 942 venture capitalists have invested in over 2,700 private equity deals involving companies in the blockchain space since 2012. In fact, in 2021, the crypto sector attracted almost US$ 30 Billion from VC funds, more than all previous years combined (2012 - 2020).

With the recent downtrend in investments came a major price correction, which made deals more accessible and profitable for Blockchain investors.

In the long run, we expect to see an inversion in the downtrend for crypto deals, and there are good reasons to believe this. The first reason is that even with the current decrease in the number/size of deals, there is a lot of dry powder in VC's hands. Historically, 2022 was the year that Blockchain VC funds raised more capital. According to Galaxy Research, more than US$ 33 Billion was raised (a 70% increase compared to 2021). So, given the time frame that VCs have to deploy capital, we should see this money flowing in over the next few years 3 to 5 years.

The second reason is that we believe that the current Blockchain technology cycle will be focused on infrastructure development. The crypto space needs to improve infrastructure to reach mass adoption. In the long term, it will benefit the whole ecosystem, enabling end-consumer solutions to emerge, thus leading to the next generation of disruptive companies.

The investment trend supports this argument. According to the CB Insights State of Blockchain Q3’22 Report, 2022 was a record year in the number and volume invested in Blockchain infrastructure companies. Despite the bear market, the foundations of the future of blockchain technology are being laid.

We are not in a bear market, but in a building market!

The third reason is that there is still room for significant growth in the future - a lot, in fact -  when factoring in the capacity that blockchain has to increase efficiency and deliver value for a hugely diverse range of businesses.

According to IHS Markit, the incorporation of blockchain into corporate business strategies might produce cost savings and efficiencies on the order of US$2.0 Trillion by 2030. In this context, we believe that despite the current reduction in investment volume, projects with good fundamentals will continue to have capital availability.

The fourth reason is the real applications that blockchain has in payments, cross-border remittances, and financial inclusion, especially in developing economies such as LATAM, which might drive mass adoption of the technology. We presented a deeper discussion about this topic in our last article.

Lastly, the current blockchain scenario has an enormous resemblance to the early days of the internet - which gave birth to many of today's most valuable tech companies - indicating the opportunity level that the crypto space presents.

In the period from 1999 to 2002, the market was overly excited with the potential of internet applications. However, in  the early 2000s, this potential was detached from the technology’s capabilities. It was only with the infrastructure development, such as the transition from dial-up connection to broadband, 3G, 4G etc… that solutions like YouTube, Instagram, or Facebook became possible, enabling the transition to the Web2 world.

As in the 2000s, the crypto market was over-optimistic with the short-term potential of Web3 applications, not realizing that there are many regulatory, infrastructure, security and user experience issues yet to be solved.  However, as we saw before, investors are still committed to the development of technology, especially regarding infrastructure.

Currently the market is undergoing a major correction in prices, removing projects without fundamentals and aligning expectations with reality. However, the next generation of leaders is currently developing solutions, and committed investors continue to fund and help the best projects. The foundations and infrastructure are being built and improved upon.

We see great similarities between the surge of Web2 big companies with the present moment. In short, we envision 1000x return opportunities for the following reasons:

1. We are at the beginning of a bear market; projects without fundamentals and founders that do not believe in the technology are leaving the space.

2. Prices are better, and the “hype” that led to incoherent valuations seems to have passed.

3. Developers and communities are maturing. The talent attracted by the last bear market will come to fruition in the coming years.

4. Despite the minor downturn in the investment trend, we do believe that the major VC investors have dry powder and still remain committed to the blockchain vision.

5. Despite the low volume of investments coming from institutional investors, as the macroeconomics scenarios start to favor more risky assets, they will turn again to crypto.

6. Lastly, there are important improvements regarding infrastructure, security, regulation, and UX that will usher in the dawn of the new generational companies that are happening right now. We will take a deeper look into that in the next articles.

If you like this content, you can find a deeper discussion about the state of crypto on our Crypto Paper, or if you are an entrepreneur with a Web3 / Fintech / Embedded Finance product, contact us, we are investing!

DISCLAIMER: This material is provided to you for informational purposes only. This is neither an offer to sell nor a solicitation of any offer to buy any securities in any fund managed by Iporanga Ventures (the “company”), nor is it an offer to provide investment advisory services. And the targeted performance contained herein is provided for illustrative purposes only and is not intended to serve as, and must not be relied upon by any person as, a guaranty, an assurance, a prediction of a definitive statement of fact, a probability or as investment advice.

In our previous article, we addressed our view about opportunities for blockchain technology in LATAM and why this region might be fertile ground for mass adoption. We now present our vision for the future of crypto, and why we believe that investing in the space now has the potential to generate outsized returns.

As we will discuss further in this article, there are some reasons to believe that:

1. The crypto market will experience a bull run, probably starting at the end of 2024/ beginning of 2025, which might contribute to the market momentum.

2. This cycle will bring a major improvement in infrastructure - enabling scale and the emergence of more accessible projects.

3. There will be opportunities created by the major valuation correction that the market has undergone.

The 2021 market cap peak - among many factors - was significantly correlated with Bitcoin. According to Bitcoin’s code, every four years there is an event where the reward per mined block is halved, thus reducing the incentive for miners and halving the inflow of new bitcoins. Ultimately it makes the currency more scarce, decreasing its inflation rate, and increasing its price in the long run. Based on that, Bitcoin prices tend to have an explosive appreciation in the fourth year of a cycle.

As shown in the graph below, despite some divergences, there has been a strong correlation between the price of Bitcoin and other coins. Thus, halvings tend to have an influence on the prices of virtually all other cryptocurrencies, given that BTC has the largest single coin market cap, and is the oldest and most well-known cryptocurrency, making any big fluctuations in its price a beacon, attracting - or driving away - new investors to the crypto market.

The last halving event occurred in 2020, which contributed to 2021’s higher prices. If this trend is taken to be a predictable phenomenon, it would suggest that the market is at the beginning of a new cycle and that the next halving event can be expected to happen in Mar/Apr 2024. In this sense, it might present an excellent opportunity to invest in this technology in the next 2 years, before the bull run.

With a bull market comes new users and a surge of developers entering the ecosystem. This is intuitive, considering that PR activity increases during this period, expanding the overall awareness about the topic and attracting new investors to crypto.

The number of crypto users has never been higher. In the last bull market - early 2018 - there were around 20 million unique addresses on the Ethereum network; today this value is 10x greater, showcasing the increasing momentum of crypto.

On the developer's side, a bull market creates a feedback loop. New and scaling projects increase the demand for more developers, which makes their salaries soar, attracting even more professionals.

Even with a bear market, this progress is not lost. As shown by the Electric Capital Developers Report, the number of Web3 developers remained at the same baseline during the last market cycle, between 2018 and 2020, indicating that new entrants in the ecosystem tend to stay.

Historically, a bull market attracts more developers that don’t go away with a bear market.

Furthermore, proportionally, Full-Time developers tend to stick more to the ecosystem, which is positive, since they are responsible for more than 3 times the amount of commits in open source projects than Part-Time and One-Time developers, thus helping to mature the ecosystem.

Regarding the number of active professionals in the industry, despite the relatively small number of Web3 developers when compared to Web2 - 23 thousand (only accounting for open source developers; the number of closed project developers should be bigger) vs. 31 million, about 0.07% -, the number of people working on this technology is clearly rising. Cryptocurrencies are among the top 5 areas of interest among developers: 59% of the world's developers – an estimated total of 31.1 million people– are using, studying, or interested in studying this field. It should be noted that almost 60% of current developers are familiar with the Javascript programming language, the basis for programming in Solidity, which is the Ethereum smart contracts language, lowering the entry barrier for new talent.

Beyond that, with the huge imbalance between supply and demand for blockchain developers, Web3 companies are choosing to train Web2 developers to code for Web3, a relatively fast process that takes from 6 up to 8 months, increasing, even more, the inflow of new talents.

Some of the most important companies on the crypto space were born on a bear market

Taking all of this into consideration, we believe that the momentum created within the ecosystem in the past bull runs will not be lost and should only contribute to the maturity of the technology, fostering the creation of new solid projects. For instance, in previous bear markets, we saw the emergence of big companies, such as Polkadot, Uniswap, Axie Infinity, DappRadar, among others, implying that good projects/teams are resilient and that projects with such relevance may be taking shape at this exact moment. From wild speculation to solid projects, Web3 is closely following Web2’s path, in which some of the best projects were forged in bear markets.

Usually, institutional investors are the major contributors to market cycles (please, refer to one of our previous articles), initiating a bull rally when investing heavily in a specific market or causing a bear market when leaving the same.

The table above, from ChainShares, presents an analysis of the flow of assets by institutional providers from 2017 until the end of 2022. It shows that during 2022 the crypto market had the lowest inflow of assets since 2019. However, as the macroeconomic scenario becomes less favorable to fixed-income assets - which is expected, according to most forecasts, a decrease in the Fed’s interest rates in the medium/long run -  prices may rise again, as institutional investors double down on the market.

Now, looking through the Venture Capital (VC) lens, there was a major increase in the number of investors seeking crypto opportunities. Most VCs committed to the thesis believed in crypto as a new computational paradigm and as an opportunity to solve important problems.

According to Cointelegraph’s Blockchain Venture Capital Report released in 2021, 942 venture capitalists have invested in over 2,700 private equity deals involving companies in the blockchain space since 2012. In fact, in 2021, the crypto sector attracted almost US$ 30 Billion from VC funds, more than all previous years combined (2012 - 2020).

With the recent downtrend in investments came a major price correction, which made deals more accessible and profitable for Blockchain investors.

In the long run, we expect to see an inversion in the downtrend for crypto deals, and there are good reasons to believe this. The first reason is that even with the current decrease in the number/size of deals, there is a lot of dry powder in VC's hands. Historically, 2022 was the year that Blockchain VC funds raised more capital. According to Galaxy Research, more than US$ 33 Billion was raised (a 70% increase compared to 2021). So, given the time frame that VCs have to deploy capital, we should see this money flowing in over the next few years 3 to 5 years.

The second reason is that we believe that the current Blockchain technology cycle will be focused on infrastructure development. The crypto space needs to improve infrastructure to reach mass adoption. In the long term, it will benefit the whole ecosystem, enabling end-consumer solutions to emerge, thus leading to the next generation of disruptive companies.

The investment trend supports this argument. According to the CB Insights State of Blockchain Q3’22 Report, 2022 was a record year in the number and volume invested in Blockchain infrastructure companies. Despite the bear market, the foundations of the future of blockchain technology are being laid.

We are not in a bear market, but in a building market!

The third reason is that there is still room for significant growth in the future - a lot, in fact -  when factoring in the capacity that blockchain has to increase efficiency and deliver value for a hugely diverse range of businesses.

According to IHS Markit, the incorporation of blockchain into corporate business strategies might produce cost savings and efficiencies on the order of US$2.0 Trillion by 2030. In this context, we believe that despite the current reduction in investment volume, projects with good fundamentals will continue to have capital availability.

The fourth reason is the real applications that blockchain has in payments, cross-border remittances, and financial inclusion, especially in developing economies such as LATAM, which might drive mass adoption of the technology. We presented a deeper discussion about this topic in our last article.

Lastly, the current blockchain scenario has an enormous resemblance to the early days of the internet - which gave birth to many of today's most valuable tech companies - indicating the opportunity level that the crypto space presents.

In the period from 1999 to 2002, the market was overly excited with the potential of internet applications. However, in  the early 2000s, this potential was detached from the technology’s capabilities. It was only with the infrastructure development, such as the transition from dial-up connection to broadband, 3G, 4G etc… that solutions like YouTube, Instagram, or Facebook became possible, enabling the transition to the Web2 world.

As in the 2000s, the crypto market was over-optimistic with the short-term potential of Web3 applications, not realizing that there are many regulatory, infrastructure, security and user experience issues yet to be solved.  However, as we saw before, investors are still committed to the development of technology, especially regarding infrastructure.

Currently the market is undergoing a major correction in prices, removing projects without fundamentals and aligning expectations with reality. However, the next generation of leaders is currently developing solutions, and committed investors continue to fund and help the best projects. The foundations and infrastructure are being built and improved upon.

We see great similarities between the surge of Web2 big companies with the present moment. In short, we envision 1000x return opportunities for the following reasons:

1. We are at the beginning of a bear market; projects without fundamentals and founders that do not believe in the technology are leaving the space.

2. Prices are better, and the “hype” that led to incoherent valuations seems to have passed.

3. Developers and communities are maturing. The talent attracted by the last bear market will come to fruition in the coming years.

4. Despite the minor downturn in the investment trend, we do believe that the major VC investors have dry powder and still remain committed to the blockchain vision.

5. Despite the low volume of investments coming from institutional investors, as the macroeconomics scenarios start to favor more risky assets, they will turn again to crypto.

6. Lastly, there are important improvements regarding infrastructure, security, regulation, and UX that will usher in the dawn of the new generational companies that are happening right now. We will take a deeper look into that in the next articles.

If you like this content, you can find a deeper discussion about the state of crypto on our Crypto Paper, or if you are an entrepreneur with a Web3 / Fintech / Embedded Finance product, contact us, we are investing!

DISCLAIMER: This material is provided to you for informational purposes only. This is neither an offer to sell nor a solicitation of any offer to buy any securities in any fund managed by Iporanga Ventures (the “company”), nor is it an offer to provide investment advisory services. And the targeted performance contained herein is provided for illustrative purposes only and is not intended to serve as, and must not be relied upon by any person as, a guaranty, an assurance, a prediction of a definitive statement of fact, a probability or as investment advice.