Sunday, April 22, 2018

Cryptocurrency? Blockchain? Hype Cycle

In my previous article on COSS, blockchain and cryptocurrency have gone through a roller coaster where bitcoin reached price close to US$20k before dropping down to US$6k. To understand this, we can use Gartner Hype Cycle.1

Gartner Hype Cycle2

5 stages in this Hype Cycle1
First stage would be technology/innovation trigger. During this stage, there is a lot of stories and media which trigger the public interest. We can see everyone is talking about blockchain technology and how they are going to change the world. During this stage, there is no usable products or commercial viability been proven. I also started investing in cryptocurrency during this stage.

Through word of mouth, we can hear people making big fortune through cryptocurrency investment. Just logging in the Facebook, we would see massive advertisement on trading cryptocurrency and ICO (Initial Coin Offering). With these media publicity, it reached peak of inflated expectation where bitcoin reaches around US$20k.

As there are over 1000 of blockchain related projects with many having same idea. In reality, there is quite a lot scams ongoing and projects fail to deliver their promise. It is not easy for retail investors to understand. In trough of disillusionment, people started to lose faith on their investments despite the fact that the technology continues it exponential growth.

To make things worse, companies who are worried about the whole blockchain technology started to take actions like implementing additional charges or blocked purchasing of cryptocurrency. Advertising giants like Facebook and Google start to ban cryptocurrency related advertisement.

On the other hand, the blockchain industry also faced regulation and tax issue. However, I believe that regulation is important for the blockchain industry to prevent money laundering and scam. We can see countries like Japan, Korea and Australia are start to adopt these cryptocurrency.

In the slope of enlightenment, the exponential growth slowly catches up with and surpasses the early expectation. We are still in the early stage of slope of enlightenment and there is better understanding how the technology can benefit the enterprise. We will see more partnerships and M&A in this industry.

Partnership and M&A
-Monex buys cryptocurrency exchange Coincheck
-Shipchain blockchain partnership with Casestack

In the last stage Plateau of productivity, the growth starts to slow down and mature. There is abundant revenue generated and we start to take the product for granted. However, I believe we are in slope of enlightenment.

Why do I invest in Cryptocurrency/blockchain?
I started working in finance industry and I understand the inefficiency of the whole industry. Just a simple telegraphic transfer take days to transfer, not forgetting the expensive transaction cost. With the blockchain technology, the transfer can be within minutes or even seconds at fraction of the current transaction cost. However, the blockchain is not mature enough to cope with the demand.

How much do I invest in cryptocurrency?
I allocated around 10% of my asset in cryptocurrency. During peak of inflated expectation, it has grown more than 20 times of my original sum but it has corrected downward. 10% of my cryptocurrency investment has generated 7 times of my 90% stock investment return for this year. I invested in both existing cryptocurrency and ICO (Initial coin offering).

ICO is much more riskier as compared to existing cryptocurrency due to the lack of information and potential scam. In my next post, I will share more on the criteria on how I select which cryptocurrency and ICO to invest.

Information from https://www.gartner.com/technology/research/methodologies/hype-cycle.jsp
2 Image from https://journeysales.com/blog/the-gartner-hype-cycle-of-crm/