We are value investors, which puts us in the company of few cryptos where a lot of weird things happen. While much of crypto is fueled by get-rich-quick fervor, where long-term demand realities like utility and scalability are often overlooked, there are ways to game the crypto phenomenon that are more traditional. With our data science capabilities and real hands-on experience coding (albeit simple) smart contracts, we recognize that there is a certain elegance and genius underlying the mechanics of blockchain and the ideal that networks that trade could be based on it. While we still believe there are long-term risks like quantum computing, which interact with China-related political risks, investors would nonetheless be remiss to deny both the technical achievements of blockchain, as well as the underlying network effects that power parts of the crypto market much like the “meme stock” craze.
While network effects would be a foolish way to justify unqualified speculation on terrible tokens, there are real ways in which network effects can create business value and fuel real and sustainable demand for certain assets within of cryptography. We believe that cryptogaming is a very legitimate goal, where blockchain lends itself to, rather than limits, the design patterns of many popular games. It’s still a very nascent world, and we believe it could grow massively, with NFTs, and that Binance Coin (BNB-USD), correlated to activity on the BSC infrastructure, is the least risky to play long-term growth in the crypto utility.
How did cryptocurrency perform in 2021?
Now that we are at the start of 2022, it is a good time to reflect on how crypto will perform in 2021 and discuss what might happen in the years to come. First, we have just experienced a significant turnaround in coin performance in general. This reflects the phenomenon that while some in the investment community view crypto as doomsday hedging, it is a risky asset and when the market gets scared these coins actually decline a lot, as opposed to to something like gold.
Bitcoin (BTC-USD) has fallen from nearly $70,000 a few months ago to just over $40,000 now, driving much of the cryptocurrency market movement. Cardano and the connected Ada (ADA-USD) also saw a significant decline, which closely follows the NFT phenomenon due to the importance of Cardano communities in driving NFT movements.
Ethereum (ETH-USD), another major platform for DApps, was more resilient.
Similarly, Binance has also been much more resilient, which starts to paint a very relevant picture for our thinking about crypto investments. Coins that act as resources to conduct business operations on prolific and more utilitarian platforms like Binance Smart Chain and Ethereum are the ones that show more resilience, due to their more infrastructural positioning. Meanwhile, coins that are tied to more speculative thinking in markets and fiat currencies, or simply traded by whales, are far less resilient in a risky environment.
Our Pick: Binance Coin
When it comes to our thinking about crypto, we are not interested in any game involving the thesis that a particular cryptocurrency will become a good store of value simply by existing. We believe Bitcoin falls into this category, and the decentralized, non-scalable, non-existent governance that surrounds it like a coin makes it untenable in the face of the global economy. We believe that coins that have utility in being a necessary resource to execute smart contracts on a widely used blockchain are the ones most likely to become mainstays. In turn, we believe that the most widely used blockchain will be one that does not take the Wild West approach to the crypto world, but is in fact governed in a way that allows it to be regulated and also put At scale.
When it comes to governance and scalability, Binance with its two blockchains takes the cake in our opinion, and is a very strong candidate to become a primary platform. The governance and consensus protocol isn’t particularly decentralized, but it achieves the speed and scalability that are essential to its position as an exchange and hub of blockchain-based DApps and commerce. The speed can be attributed to its unique consensus protocol, where BSC uses Proof of Authority Milestones (PoSA) which hybridizes a proof of authority and delegated proof of participatory approach. There are validator candidates that must be identified by Binance, which are then voted on by delegates every 24 hours to determine the top 21. All of these players are compensated in BNB when offering blocks, which is not inflationary, and the funds come from fees charged on transactions in the block. Ethereum has tens of thousands of validators, so having only 21 seriously reduces the amount of redundant computations. The ability to identify validators could become a critical element that differentiates Binance, as they can retain the fundamentals of a consensus protocol while being able to monitor which interests are able to validate blocks. Additionally, Binance is working to make its platform more friendly regulator all the while introducing ways to identify users using the exchange, critical as it is still in friction with regulators due to its role as an exchange and its implicit influence over citizens and their investments. Too, the data being public on the blockchain enables data analysis and other operations that can help track and deter illicit activity, even in concerted efforts on Binance accounts.
Cryptocurrency Catalysts to Watch
Development skills for Ethereum also happen to be highly transferable to development on Binance, so in addition to the factors mentioned above such as better scalability and a more feasible path to becoming government-sanctioned, Binance has a chance to become its own economy for businesses and people looking to trade with clear and actionable blockchain smart contracts. By already being one of the largest hubs in the crypto world, with BNB being one of the largest coins by market cap, they already benefit from network effects and preferential attachment that supports momentum. of win-win. We believe that cryptogaming is a phenomenon that will take place on the most prolific platform. While Ethereum has some dominance in the DApp space, Binance, with its many useful apps related to commerce and agriculture, is a worthy contender to the throne. It’s already a place where you can trade a lot of NFTs and other tokens related to games, even Axie Infinity after integration with Ronin. Besides, YoHero is a competing game launched on the BSC that’s getting a lot of traction. In general, we see a lot of utility in NFTs, even those that aren’t useful by being useful assets in related games. Indeed, in many cases they operate much like assets in the art market, which is notoriously pretentious and non-utilitarian in apparent contradiction to its enduring liquidity. But with cryptogaming being such a nascent category, once again good games are coming out that won’t even need to rely on game logic to win, especially those that take advantage of the collectible card model inherent in blockchain tokens like Axie Infinity (but possibly many other types as well), there could be massive growth in a whole new category of DApps that could start and persist on a blockchain like BSC to drive demand for BNB. .
Conclusions and risks
While there are many ways to play the potential cryptogaming boom and NFT craze we are already seeing, we want to take lower risk approaches. So we look at the infrastructure within crypto, where we believe Binance, with its native Binance Coin, has the best chance of meeting sustainable demand. While Binance as a platform has its regulatory issues, as a blockchain infrastructure for relatively decentralized commerce, it is most likely to both comply with general regulations, achieve its purpose, and achieve greater scale through its consensus model. We are already seeing signs that even for cryptogaming DApps, Binance could be the platform of choice, again thanks to its scalability but also because it is a node for so much activity in the community due to its association with an exchange. With the growth of DApps on the platform and with the growth of cryptogaming in general, the increase in contract enforcement activity on Binance fueled by the network effects of developers and users joining and growing the database. applications, Binance Coin is probably the most likely to justify its own market cap > $80 billion. With Binance’s infrastructure finding a middle ground between scalability and decentralization, while already being a node for many smart contract developments, we would take the position that they could become a significant economy, and Binance would create a significant currency, if businesses start enjoying the benefits of doing business with programmable, tractable, and unambiguous smart contracts.