gp-houndbull-research-cryptocurrency-token-frenzy-report

The past year has been a tremendous one for cryptocurrencies. Bitcoin prices hit previously unprecedented highs, and thousands of altcoins have risen to prominence in the growing market for cryptocurrency exchange.

It isn’t just the prices that have made cryptocurrency into a major point of discussion, either. A class-action lawsuit against Ripple has driven concerns of regulation in the decentralized blockchain and its many currencies. As governments all over the world struggle with the question of what to do with the incredible crypto-technology and its many modern applications, cases like Ripple’s may turn out to be benchmarks in the history of the ever-growing market.

Because of the massive changes, innovations, and questions brought to light in 2018, the market continues to struggle to find its identity. New investors are bombarded with a plethora of information, making it harder than ever to find footing in the stormy waters of the confusing cryptocurrency economy.

Perhaps a result of the confusion that characterizes the modern cryptocurrency market, investment advising firms continue to grow in popularity. As the need for solid advice on cryptocurrency concerns becomes essential to the modern investor, some traditional advising companies are even revising their business model to appeal to an increasingly technologically-evolved sector of investment.

GP Bullhound is one such organization. Styling themselves as “dealmakers in technology,” the London-based organization provides advice in a variety of markets. They boast a heavy presence all over the world; offices in the US, Germany, Sweden, France, Hong Kong and Spain, the advice dispensed by GP Bullhound is laden with a knowledge of global trends and knowledge.

Bullhound frequently publishes lengthy information packets regarding the latest developments in the world of cryptocurrency, investment, and technology.

Their latest packet is ominously titled “Token Frenzy,” and it is rife with the company’s predictions and analyses of a year of drastic change in the technological marketplace. Perhaps most important to the savvy investor is the list of dark predictions levied against the market in the final pages of the GP Bullhound publication.

Bullhound predicts that there will be a “mass market wipe out” in the coming year. This means that the market will experience a significant correction in price. Starting with Bitcoin and moving to nearly every virtual currency without fiat value, GP Bullhound predicts a significant drop in what they perceive to be incorrect pricing.

But the headline story is not the only ominous prediction made by the meticulous researchers of this advising firm. The packet provides a wealth of analysis into the state of a market still reeling from a massive year of interest, expansion, and exposure.

Methodologies and Considerations

Savvy analysts and investors often regard methodologies employed as the first factor in evaluating the analysis of any particular speculator. Consequently, GP. Bullhound’s informational piece includes a section detailing the methods used to come to the conclusions outlined earlier in the periodical. Additionally, they outline the “caveats,” or flaws, to their methodology.

The primary area of examination used by Bullhound was the ICO/blockchain project funding process. It is apparent that these investing advisors used data on the successes, failures, and adaptations of technology used in cryptocurrency-funded companies to gauge the state of the entrepreneurial market. As a result, they claim to be able to “provide an overview” of the trends and characteristics of the blockchain sector.

They have not, however, been able to include private, or permissioned, companies on the blockchain in their analysis. Their areas of exploration in this particular research were limited to publicly-available data and ICO information.

The caveat to their methodology is likely evident from their lack of private sources. This could be a particularly important consideration for investors looking to the GP. Bullhound analysis for advice and guidance. The cryptocurrency market, despite its reliance on a public ledger, is comprised greatly be private businesses, private sales, and privileged information.

With that in mind, it is important that readers conduct their own research and evaluate all possible sources before making a decision based off of the advice given by any particular advising group. Opinions on the blockchain vary and can be affected by hundreds of factors. This piece should not be considered an endorsement of any particular piece of advice, and investors must always double-check recommendations.

Early 2018 in Review

The primary area of focus in the Bullhound analysis is the funding of ICOs, or Initial Coin Offerings. These coin offerings experienced a massive spike in popularity in 2017. Their review of ICO funding includes a comparison between the crowdfunding technique and venture capitalism in terms of popularity. They concluded that ICO funding vastly outperformed venture capital funding in 2017, exceeding it by a factor of five.

To put it into perspective, $4.044 billion was poured into ICOs in 2017, as compared to only $709 million given through traditional venture capitalist investments. What’s more is that prior to 2017 ICOs were dwarfed by venture capitalist funding; 2016 saw $457 million in venture capitalist investment and only $85 million in ICO.

It is also important to note that, while total market funding from Initial Coin Offerings has grown significantly from 2016 to 2017, the venture capitalist funding has grown at a steady rate—no explosion. For an economic analyst, this could mean several things. But for GP. Bullhound, the implication is that ICOs exploded in popularity, and that a correction is sure to follow.

Bullhound predicts that venture capitalist funding methods will make a resurgence as the hype surrounding ICOs begins to subside. They observe that most companies have “completely ignored” equity venture capitalist funding as a means of acquiring startup money.

Additionally, their analysis of late 2017 revealed that the ICO market has already begun to cool down. A constant climb in the total number of ICOs per month occurred until October of 2017, at which point the numbers decreased sharply. Even more interestingly, the percentage of coin offerings that resulted in the startup reaching their funding cap has steady decreased from the first to the third quarter of 2017. The conclusion: less ICOs are being presented, and they are becoming smaller and less successful – although quarter 1 of 2018 has been more impressive than most might imagine with the total ICO fundraising totals still increasing at impressive rates despite legal uncertainty.

Consequently, GP. Bullhound predicts that the cool down in ICO interest will allow savvy companies to turn to venture capitalist methods of funding their goals, resulting in a resurgence of the strategy in the evolving market.

Venture capitalist funding generally takes the investment game out of the hands of the average citizen, and places it into the hands of large investment firms and companies. For the cryptocurrency market, this could result in a stabilization of investment and trade; the market would become closer in functionality to a fiat stock market such as the one in the United States.

Blockchain Protocol Technologies—Ethereum Dominates

Another major aspect of the GP. Bullhound model of analysis is their interest in the technology backing the cryptocurrency investment industry. The third chapter of their publication details the changes and innovations to “leading protocols” that exist within the blockchain ecosystem.

This section is characterized by Bullhound’s belief in the market dominance of Ethereum and includes an explanation for this domination of the blockchain platform market. Perhaps the most revealing statistics regarding Ethereum and its lead over similar ecosystems is the number of ICOs to-date which have relied on their technology. For Ethereum, the number is 201. Contrasted to only 14 on the next leading key base protocol, Waves, it is clear that Ethereum heads a competitive technological market.

The ICO volume, market cap ratio, and market cap share is also higher on Ethereum than on the three other protocols listed (Waves, Bitcoin, and Neo). Ethereum is relatively new, too; it was founded in only 2015. This prompts the question: what factors contribute to the market dominance of Ethereum as a platform for blockchain programs and startups?

Answering this question, GP. Bullhound speculates five main causes for Ethereum’s popularity.

First, they cite “relative ease-of-use” as a reason that many new companies rely on the platform. This has always been a major selling point of Ethereum. Their main sales pitch to developers is that their blockchain protocol allows users to create their own ecosystems and currencies with moderate ease. While this does not necessarily mean that developers don’t need a rudimentary understanding of blockchain and ledger technologies, Ethereum does lend itself to a user-friendly interface for blockchain developers.

A strong community and quick address of scams are two factors that interact greatly in favor of Ethereum as a platform for blockchain ecosystem formulation. Bullhound points to the fact that Ethereum is generally considered “the standard protocol” for blockchain applications as evidence of the community’s acceptance of the protocol. Major backers of the technology, including ConsenSys and the Enterprise Ethereum Alliance are said to bolster the community strength at the core of Ethereum.

Because of this strong community, Bullhound remarks that the protocol has been surprisingly effective at responding to scams. The community has worked hard to curate, review, and self-regulate new ICOs. This point is especially important when investors consider the volatility which characterized the market in 2017 and early 2018.

Ethereum also provides what Bullhound considers to be industry-leading performance metrics. Specifically, Ethereum’s goal of doing a decentralized 50,000 transactions every second has led to some of the best block speeds currently available.

The fifth and final justification for Ethereum’s prevalence on the market of blockchain protocols comes down to the innerworkings of their leadership. GP. Bullhound posits that there exists a strong sense of leadership and vision within the founders of Ethereum, even considering the decentralized nature of their project. Avoiding the pitfalls of a decentralized leadership structure, the platform’s ability to maintain a constant business goal and long-term prerogative is a testament to the traditional viability of their leadership.

The implications of Ethereum’s dominance for the modern investor is clear. The market of ICOs using Ethereum as the backdrop for their application continues to grow, and understanding the relative stability and safety of the Ethereum community is key to effective investment.

Persisting Challenges in the Blockchain

Following the optimistic praise of Ethereum’s technology, Bullhound’s periodical publication turns its sights on the problems yet to be solved before blockchain technology is adopted on a massive, global scale. The format of this section includes analysis of the problem, as well as solutions provided by distinguished professionals and researchers in their respective fields.

The first major problem is a big one: scalability of the blockchain. This technological query has puzzled technicians and developers since the conception of the bitcoin blockchain. Professor Emin Gun Sirer of Cornell University remarks on the difficulty of the issue, saying that on-chain scaling, which is expansion that occurs directly on the decentralized ledger, is complex and difficult to accomplish. Though the alternative of off-chain transactions in the case of overflow is clearly present, he laments that such a process would “undermine the basic premise” of the trustworthy, decentralized blockchain technology.

Professor Sirer quells concerns, saying that promising research being conducted continues to provide an optimistic outlook for a difficult issue. Additionally, he appears to be particularly concerned with the growing public interest in the formation of validator networks—groups of machines that keep track of movements on the blockchain. He is unsurprisingly cautious of this de facto centralization of information, but he does look confidently towards the increasingly-sophisticated development of “hybrid architectures” in the blockchain.

GP. Bullhound dives into the analysis, conceptualizing the problem as a stability concern. They found that improving one element of the blockchain can result in harms to other aspects. Projects like the Bitcoin Lightning Network, Plasma Sharding, Raiden, TrueBit, Polkadot, and Cosmos are highlighted as leading projects trying to solve this scalability issue.

NuCypher founder MacLane Wilkison details privacy concerns and solutions on the blockchain in his one-page piece. He highlights the apparent contradiction in the simultaneous need for anonymity and publicity, both concepts which sit at the foundation of blockchain’s original intended purposes. The rise of privacy-coins like Dash have raised concerns, especially considering the likelihood that such coins are being used for illicit purposes.

As a possible solution, Wilkison’s company seeks to develop technology that keeps user transaction information private but will make data accessible to an “approved list” of viewers—likely law enforcement and governmental entities. This development is especially important to investors concerned about market failings following a government overregulation of coins they deem to be integral to black market functionality.

The final major issue and solution outlined in this section is the concept of governance on the blockchain. Massive legal issues like the DAO hacking have caused concerns regarding the distinct lack of enforcement mechanisms, compliance strategies, and authoritative hierarchies within most blockchain ecosystems. The hacking of the DAO, according to Aragon Research communications lead Tatu Karki, has caused “real fear” among holders of coin that their money might be at risk.

In order to alleviate these concerns and provide stability to a volatile ecosystem, Karki and his company propose an increase to transparency that would allow the community to become more involved in the decision-making process. Aragon’s work seeks to provide open code information and frequent, public meetings to incorporate the community in the solving of key issues on the blockchain.

Bullhound’s statistics highlight the different kinds of tokens and their functionality for users on the blockchain. They emphasize that holders of tokens currently do not participate in corporate decision-making.

Despite the gloomy title, this section of Bullhound analysis provides a moderately hopeful outlook for the future of the blockchain community. The prevalence of promising research and development companies provides ample opportunity for innovation to overtake some of the key issues preventing the total expansion of blockchain technologies all over the world.

Looking Forward—The Future of the Blockchain

The fifth and final section of GP. Bullhound’s “Token Frenzy” publication provides their most direct predictions on the coming year for the blockchain. There are several major predictions with ramifications for nearly all modern cryptocurrency investors and analysts.

First, Bullhound speculates that ICO funding will remain popular, but will consolidate into fewer but larger funding efforts, as opposed to the many, small ICOs which currently oversaturate the market. Specifically, they predict that giant ICOs will eclipse the current record-holder for funding, the $2 billion project Telegram.

In the coming years, GP. speculates that traditional metrics for success—credibility of founders and track records of companies—will become the metric by which analysts can predict and gauge ICO success.

Once again harkening back to their interest in the resurgence of venture capitalism in the cryptocurrency investment market, these analysts feel that “smart money” will be the key to success in the investment sector of the blockchain. Though the author admits that venture capitalism “is not going anywhere,” he does advocate for a change in paradigm. If smart money will continue to dominate the cryptocurrency investment sector, Bullhound concludes that venture capitalist investors must support the smart, capable, and proven leaders backing their funding projects.

Another interesting aspect of the Bullhound prediction for 2018 is their belief that this year will reveal the first corporate ICO, or a company operating on a permissioned chain that transitions to the public blockchain. This is important to investors. A transition from the private to the public seems to rival Wall Street’s concept of an Initial Public Offering. Companies that take advantage of public interest in public blockchain transition could score big points when it comes to funding a long-term engagement.

The final prediction for 2018 is the most devastating to many investors. GP. Bullhound refers to the prospect of a “mass market wipe out.” When this wipe out happens, they predict that prices of popular currencies could correct, dropping “up to 90 percent” this year. Even more foreboding, they find that “very few companies” will survive past this massive market correction.

Although it will be a traumatic experience for the community, Bullhound’s analysts seem convinced that the correction will be a good thing for the long-term stability of the blockchain economic ecosystem. The article explains that the correction will be important to cut through the hype, separating the winning corporations from the losers. Following what they call a “crypto-winter,” Bullhound argues that insurmountable and impressive growth for surviving companies will revitalize and stabilize the market.

Conclusion: A Guided Optimism

Leading investment and technology advising organization GP. Bullhound’s “Token Frenzy” publication is a treasure trove of interesting analysis. Reflecting on a year of tremendous growth for the blockchain and the problems that still preclude its expansion, the revered analysts on the Bullhound team attempt to provide insight into a shaky and uncertain cryptocurrency future.

2017 marked the start of a clear increase in ICO prevalence on the blockchain. Thousands of new projects funded by the crowdfunding Initial Coin Offering method dwarfed companies funded though venture capitalism. But as the hype surrounding ICOs continues to die down, Bullhound looks forward to a resurgence of venture capitalist prevalence in the market.

As projects all over the world work to solve the problems of the past and create the blockchain architectures of the future, there are many reasons to be optimistic for Bullhound’s views on the future of cryptocurrencies like Bitcoin.

Whatever the causes, a massive change seems sure to come. According to Bullhound, a “crypto-winter” approaches, threatening a massive market correction and the decimation of countless smaller companies on the blockchain. But from the ashes of this correction, Bullhound sees a stronger and more stable economic system emerging.

Bullhound’s analysis does not shy away from the need for reforms within the blockchain community. It embraces the follies of existing ecosystems but looks hopefully to the ingenuity of leading technological minds in providing effective solutions to the blockchain’s most pressing problems.

Analyst Sebastian N. Markowsky of GP. Bullhound seems to accurately characterize the guided optimism with which his organization approaches the explosion in blockchain popularity in the past year. He writes that blockchain technology bears massive potential, representing a “new definition of trust and transparency” that will continue to effect millions of lives all over the world.

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