A Crypto Holiday Special: Past, Present and Future with Ben Lilly

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2022 is coming to an end and our staff at Bitcoinist have decided to launch this Crypto Holiday Special to provide perspective on the crypto industry. We will speak with several guests to understand this year’s highs and lows for crypto.

In the spirit of Charles Dickens’ classic A Christmas Carol, take a good look at crypto from different angles, examine its possible trajectory for 2023, and find common ground between these different visions of an industry that could support the future of finance.

Ben Lilly: () for the fundamentals Nothing has changed. On the contrary, builders are building faster than ever. All of us veterans know that these are currently the most productive weeks you can have in crypto. It is a blessing for those who can go through such downturns.

And now, for a bonus round, we spoke with Ben Lilly, co-founder of Jarvis Labs, the on-chain analytics and token design firm that tracks the crypto market. Lilly offered her perspective on the current state of the industry, why the bear market should be used as a time for construction, and why the fledgling class has matured. Here is what he told us:

Q: What is the most significant difference for the crypto market today compared to Christmas 2021? Beyond the price of Bitcoin, Ethereum and the like, what has changed between that moment of euphoria and today’s perpetual fear? Has there been a decline in adoption and liquidity? Are the fundamentals still valid?

A: In December 2021, we were discussing whether or not the US Federal Reserve would continue with rate hikes in the face of soaring inflation. A year later, what we have seen is a strategic push to say they will take two steps, and instead take three in a hawkish/bearish manner. This not only hurt the markets, but also caused the markets to find no solid foundation to build on.

This mentality led to a fast-hiking diet. The effects of the downward wind were that the dollar was the currency that was the asset to hold. And almost everything else has lost value against the dollar.

Many people like to say that Bitcoin, Ethereum and other assets have lost value. It is an abuse of language. We value things in US dollars, and relative to the dollar, these assets have lost considerable value.

What many people are also slowly realizing is that most participants in the crypto markets are and were speculators. It’s rather a shame, in my opinion. And something I’m looking to track better with data.

The decline in the number of speculators (and many market makers closing their shops) left a significant hole in liquidity. We are well aware of this. It is very difficult for market makers to operate properly on some second tier exchanges because the books are quite dry. We understand this well when we first started exploring market making since our team has been running autonomous trading systems for half a decade now. Clients are asking us more than ever to do market making, which is why our team has started to accelerate these operations for 2023.

As for the fundamentals Nothing has changed. On the contrary, builders are building faster than ever. All of us veterans know that these are currently the most productive weeks you can have in crypto. It is a blessing for those who can go through such downturns. I see some really awesome technology solutions coming to fruition right now. Our team is currently testing some of these and looking to expand our onchain functionality in the coming months, something we’ve been exploring for years now. For us, this is proof that the fundamentals of the industry are only improving.

Q: What are the dominant narratives driving this change in market conditions? And what should the narrative be today? What do most people overlook? We saw a major crypto exchange explode, a hedge fund considered untouchable, and an ecosystem that promised a financial utopia. Is crypto still the future of finance, or should the community pursue a new vision?

A: Chained operations are becoming more desirable than before. Our customers are pushing us in this direction, which tells us that the mentality of not trusting and verifying is becoming increasingly important. I love hearing that and hope to push everything we do to be fully on-chain in the years to come.

In other words, I never imagined that our team would look into zero-knowledge technology to run part of our operations. To put it simply, the vision is the same, just a more crystallized process that will continue over the years.

Q: If you have to pick one, what do you think was a big moment for crypto in 2022? And will the industry feel its consequences throughout 2023? Where do you see the industry next Christmas? Will he survive this winter? Mainstream once again declares the death of the industry. Will they finally succeed?

A: The significant moment was that GBTC slid into negative NAV.

As the tide receded in 2022, we learned what was really going on in the crypto waters, and we see many explosions originating from the Grayscale Trust product.

Three Arrows Capital, Genesis, DCG, BlockFi, Voyager and others were all associated with the trust and because the value of the trust was greater than the value of all outstanding shares (negative NAV), market momentum caused a decline in cash demand. April 2021.

The timing with this and what the US Federal Reserve did with the rate hikes was like a double edged sword where both edges were pointed in the same direction. Higher rates and weaker spot demand due to a grayscale toxic product meant the bear market sword cut twice as much.

As for 2023, I still think the worst is yet to come. I’m not necessarily referring to price here. I am talking about operations that do not have enough money to face the winter. Revenues are down, new entrants into crypto are down. While I think this is good in a way, as it rids the industry of poorly run businesses, it will cause fear for the industry as businesses close their doors.

It won’t be the end of the industry from my point of view. Those with capital have plenty of leads. And even those without multi-year leads are occupied by very passionate builders. By the end of 2023, we will see the market come back to life with great excitement. I don’t believe this will be a full fledged bull market by any means. It will be more projects rolling out the things they have been busy building for the year. You give a group of crypto developers a year to build, the results are breathtaking.

Q: And, of course, we have to ask; many claim that the collapse of FTX takes the industry back to the bear market of 2018. Back to the era of the initial coin offering (ICO), the so-called “Wild Wild West” era of crypto, what do you think of this idea, and where do you think the industry stands now? More importantly, what is Jarvis’ role in this context, and where are you aiming for in 2023 and beyond?

A: Crypto matures like we all do as we age. You ask anyone who’s had their ups and downs if they’ve been taken back to when they were a younger version of themselves. Most would say they are much wiser, and often setbacks are how we truly realize our potential. The crypto is the same.

We discussed earlier how onchain solutions are more in demand than ever. Well, the industry has struggled with centralized entities like FTX, which had a goal of making money and not contributing to the space.

The price of BTC is moving sideways on the daily chart. Source: BTCUSDT Tradingview

Space will be wiser in the future. And we hope Jarvis Labs can help foster that mindset. Our team has been busy in many verticals. We have teams creating software solutions, new metrics, dashboards, token designs, algorithms, and a few other things that we will reveal soon. But if I had to stick to one role, it’s to help everyone keep crypto at a higher level. We can be better. Let’s get better.

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