Scenario #1

Crypto fails to gain serious adoption (can be due to underlying tech or lack of killer app)

In this scenario, the crypto market attempts to break out with user-facing applications, with no success. Over time, many users abandon crypto platforms, and the market cap sinks. From a technology perspective, a generation (10 years) passes by, and crypto seems to have not advanced beyond the current state. No real-world problems have been solved, and the industry loses the shine it once had in its younger years.

We view this as a roughly 1/20 chance, with the 5 year mark being a critical juncture to determine whether something profound is happening here that speaks to the average western consumer.

Scenario #2

Crypto dies or is significantly delayed because it gains too much adoption and world governments shut it down

Bitcoin loses ala Bit Torrent

This is the second bear view on the space. Unlike the first, in this case, the crypto market grows rapidly, both in terms of active participants, and the value stored in the alternative financial system. Killer apps come to market, and adoption grows rapidly in the next 3 years.

World Governments begin to feel threatened and ban, outlaw, criminalize and sanction most things related to the crypto market, with a heavy focus on the leading money use case, BTC.

This is similar to how many countries approached Bit Torrent, the popular illegal file sharing platform. While adoption to Bit Torrent slowed, there are still an estimated 1M daily active users.

Against all odds, this approach somehow succeeds, stifling the growth and innovation of the space. Over time, alternative services pop up, and the crypto buzz seems to die down.

We view this as a 1/33 chance. It would require tremendous global coordination.

Scenario #3

Blockchain tech becomes mainstream but only via state-backed cryptocurrencies running on private networks connected via the Ethereum Network (or something similar)

JP Morgan Coin Wins the Pie

This outcome is what I think of when I hear from other investors “Blockchain not Bitcoin.” In this scenario, the financial revolution dies, but the open source interoperable “world computer” vision presented by smart contracts is adopted and our current financial system ports over.

In this case, we pick two winners and a loser. Bitcoin is replaced as the settlement layer with Crypto-USD-Coin. Cosmos SDK is the go-to development tool for nation states to tokenize their native currency, and Ethereum is leveraged to create a level playing field for interoperable DeFi.

Because Ethereum provides value beyond a store of value, it may weather the storm of the collapse of Bitcoin, and re-position itself as an open utility for nation states to interact. Some other combination of protocols could replace Ethereum and Cosmos in this example, but this is our highest likelihood outcome for this path right now.

We give this outcome a 1/8 chance of occurring.

Scenario #4

Crypto remains a niche techie community

The diehards love it, but the rest are “meh”

In this scenario, crypto never really proves itself or gets off the ground. Unlike Scenario #1, where no one figures out what to do in this space, in this outcome, a decent sized following remains devoted to the space regardless of lack of break out success.

While some may feel they have found “the killer app” the majority of network participants move on, and the space stays flat at a modest level. Think of this like the “guys who build model trains”. It’s definitely an industry, just not one we want to be investing in.

We give this a 1/20 chance.

Scenario #5

Bitcoin becomes mainstream and becomes the financial settlement layer for the blockchain financial system

This scenario we would describe as “hyper Bitcoin-ization”

In this case, try as they may, no one figures out anything useful to do with blockchain technology other than sending Bitcoin.

Bitcoin, as a decentralized financial settlement layer proves to be useful on a global scale and fulfills its vision of “digital gold”.

We give this a 1/50 chance.

In this scenario, its possible digital assets on top of BTC get built out and the total market cap rises commensurately, but we did not include it in the exercise.

Scenario #6

Eth dominates in the space, becoming the leading smart contract provider, and storage of value, Bitcoin languishes

This outcome is most likely the goal of Vitalik, the creator of Ethereum.

The rise of a scalable Ethereum network leads to the “decentralize everything” and “tokenize everything” movement.

Finance moves over to the DeFi space, and day to day commerce is eaten by crypto daily spending.

Ethereum solidifies its issuance and monetary policy and makes BTC obsolete as a settlement layer, and ETH becomes the defacto store of value in cryptoland.

The interoperability of open source projects on the Ethereum network creates an impenetrable moat, bringing more and more developers, projects and entrepreneurs to the Ethereum ecosystem.

Mass adoption arrives because, everything you want to do, somehow becomes cryptorelated.

We give this a 1/10 chance.

Scenario #7

BTC and ETH become clear market leaders, each serving a differentiated market need as the total crypto market emerges to mainstream adoption

A world computer and Digital Gold

This is our Charlie and the golden ticket scenario.

Copywrite Dahl estate and Paramount Pictures, not used with permission

A secure Proof of Work, immutable, limited supply, settlement layer, combined with a scalable, highly interoperable, general asset issuance and computation layer working together to create a new Internet of Value.

We give this a 1/3 chance.. Currently we are still debating internally whether ETH or BTC captures more value in this scenario. Both can serve the SoV use case with nuanced differences leading to valuation disparity.

Scenario #8

Emergent blockchain using alternative tech becomes a market leader and challenges BTC and ETH

 

The current blockchains in the space become the “Friendster” and “MySpace” of the industry. A new player arrives and eats away market share until they are the clear winner, solving problems faster and better than Bitcoin or Ethereum (or maybe just Ethereum and BTC holds its position).

This could be a Cosmos, a Polkadot, Dfinity, Near Protocol, at this point it’s hard to say.

We give this a 1/5 chance.

Scenario #9

Many platforms become widely adopted with no clear dominant base layer

In this case, the industry takes off, but due to varying intricacies in the space, no clear leader emerges.

It could be each geographical region gains a leader, or each nuanced use case has its king, but in the end, the crypto landscape becomes commoditized without a “winner takes all” scenario.

We give this a 1/10 chance.

Note — in our upside scenarios, the reason the Total Market Cap is so high is because we believe that most financial (and potentially non financial) assets will be tokenized and represented on public blockchains.

How to actualize all this information?

Now that we have walked through our views of the most likely outcomes, we can take these probabilities and time frames and perform an analysis on the potential upside of investing in this space.

Expected returns adjusted by probability

What we see here is that regardless of how this space matures, if the outcomes are close to our assessment, there will be many opportunities to see significant returns by investing in the crypto market today.

If you would like to view the raw Google spread sheet and make comments please use this link. We look forward to entering into a meaningful discussion around our current vision of the future and hope to help mature the space regarding valuation models and the potential return on investments.