On March 24, David Siemer of Wave Financial, Parker Waldron of SkyBridge, and Matthew Hoffman, founder of Trusted Advisor, engaged in a wide-ranging discussion of the contemporary climate for crypto investing. In what follows we will expand upon one aspect of that conversation, the question of how much room at the top there is for crypto: will it all shake out as one (or a very few) winner and many losers?
There are, obviously, winners and losers in crypto markets, as in all others. If an investor bought DOGE in May 2021, when it was worth more than $0.60 due largely to the Elon Musk pump, and that investor has held on “for dear life,” the result does not look pretty. DOGE is now in the neighborhood of $0.14.
On the (reasonable) hypothesis that this joke currency never regains its brief mid-year numbers, then HODL won’t do our hypothetical investor any good, except whatever psychological comfort it may provide that he won’t have realize the loss, until such time as DOGE goes to the rainbow bridge.
Crypto losers aren’t defined solely by the coins. Once-promising crypto oriented enterprises have ended up in the graveyard. One notable example is Blockchain Global (BGL), the mining, trading, and consultancy concern that closed up shop in early 2020.
Formed in Australia in 2014 as the Bitcoin Group, this company rebranded itself as Blockchain Global in 2016, and developed the blockchain exchange platform ACX.io. In early 2020 ACX stopped operating and froze the accounts of its users. BG itself has since been liquidated, and investors may still be asking themselves, “what the heck happened?”
The Shortcomings of Skepticism
Skeptics about the whole crypto realm often speak as if failure such as DOGE or BGL is or will soon be the normal case, and what the skeptics see as “the bubble” bursts, there will only be a small group of top-of-the-heap survivors. Their warning is “stay away from crypto, and you won’t have to worry about beating the bad odds.”
At the March 24 discussion Siemer made a sound point, though, about the shortcomings of such skepticism.
He contended, “most people massively underestimate how many winners there may be in each space.”
By way of illustration, he drew upon the search engine wars of the final years of the last millennium and the early years of this one. The “winner” was surely Google, which is now Alphabet, at a market capitalization that is closing in on $2 trillion. The skeptics, by analogy, are saying that although anyone who bought GOOG at its IPO in 2004 has cause to celebrate, people who bet on any of the other combatants in those wars have failed.
But Siemer’s point is that there was a lot of money made by people who invested in a lot of different search engines in that period, and I think the application of this point to cryptos and especially NFTs is worth some elaboration.
Don’t Be a Pig. Don’t Get Slaughtered
Perhaps the best piece of wisdom to cite here is that of Jim Cramer, who tells us, “Bulls make money, bears make money, pigs get slaughtered.” The idea is that one wins if one takes money off the table at the right time. This cashing-out decision works whether one’s underlying bias is long or short. The “let-it-ride” attitude is what will over time lead to disaster.
In June 1993 Stanford students at a garage in Cupertino, California created Architext, software designed to manage the large amount of information already available on the World Wide Web. In due course, Architext would become known as Excite!, and it would merge with the broadband provider @Home.
Jerry Yang and David Filo invented the Yahoo!Directory in 1994. It would IPO in 1996.
Research at Carnegie Mellon University led to the spin-off of Lycos, the name of both a company and search engine, later that year. Lycos was also the first such company to go public, with an IPO in April 1996.
Google developed its search technology in the period 1996-97. Few outside the founding circle saw it as a standout at this time.
April 1997 saw the introduction of AskJeeves, a search engine that offered a then-unusual ranking of links by popularity, and that was marketed for its facility with natural language. Ask Jeeves would become Ask.com.
Those are only some of the names one might invoke from their era. The search engine field was already a hotly competitive one before the turn of the millennium.
The “search engine war” intensified after 2002, when the various rivals started explicitly announcing their algorithm updates. Two years after that, MS abandoned its backend search providers and created its own search engine. That development (2004) roughly coincided with Google’s initial public offering.
Google didn’t establish its dominance until late in the decade with its attention to the ease of the user experience. This attention was reflected, for example, in Google Instant (search as you type), and Instant Previews (obtained by hovering over links), in 2009-10. By 2011, the company was handling roughly 3 billion searches per day by way of 11 data centers around the globe, and it had grown into much more than a search engine concern.
As if to put a period on the epoch, Yahoo sold itself to Verizon in 2016.
Money Taken Off Table and Other Graceful Exits
Well before that Google had established its victory. Its annual revenue crossed the $50 billion point in 2021.
But, to Siemer’s point, in the whole 20 year period 1996 – 2016, a lot of investors made a lot of money on search engine companies other than Google. Yahoo closed its first day of trading at $33. Four years later a share purchased at that price would be worth more than $400. Those who weren’t pigs, in Cramer’s sense, didn’t get slaughtered.
The same must be said for both the alt-coins and the various businesses they have spawned. Perhaps in time the markets — for exchanges, for the financial services and financial software provided by Siemer’s company, Wave Financial, for the necessary computing equipment (whether for mining or for other services), the mobile apps, the data aggregators, conference organizers, etc. — in principle any or all of it may consolidate.
Still, the consolidation needn’t be a loss for “all but one.” After all, if one data aggregator buys another, the shareholders of the target company are compensated. Often, that was precisely their exit strategy.
Siemer and Waldron
Siemer is the recipient of an MBA from the University of Chicago and the founder of a technology oriented investment bank, Siemer & Associates LLC, which he sold six years ago to CEC capital. He was joined in the discussion by Parker Waldron, who became a partner with SkyBridge in January 2021. SkyBridge is the investment firm founded in 2005 by Anthony Scaramucci. It is a registered investment advisor and an alternative investments manager investing in hedge funds, digital assets, private equity, and real estate.