A Crypto Holiday Special: Past, Present, And Future With Ben Lilly

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

In the spirit of Charles Dicken’s classic, “A Christmas Carol,” we’ll look into crypto from different angles, look at its possible trajectory for 2023 and find common ground amongst these different views of an industry that might support the future of finances.

Ben Lilly: “(…) for fundamentals… Nothing has changed. If anything, builders are building faster than ever before. All of us veterans know that right now are the most productive weeks you can have in crypto. It is a blessing to those that can weather such bearish times.”

And now, for a bonus round, we spoke with Ben Lilly, Co-Founder at Jarvis Labs, the on-chain analytics and token design firm tracking the crypto market. Lilly offered his views on the industry’s current state, why the Bear Market must be used as a time for building, and why the nascent class has matured. This is what he told us:

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

A: In December 2021 we were discussing whether or not the U.S. Federal Reserve would follow through on rate hikes in the face of bubbling inflation. A year later, what we’ve seen is a strategic push on saying they will take two steps, and instead take three in a hawkish/bearish manner. It has not only hurt markets, but ensured markets could not find any solid footing to build momentum on.

This mentality led to a rapid hiking regime. The down wind effects were dollars as a currency were the asset to hold. And most everything else lost value to the dollar.

A lot of people like to say Bitcoin, Ethereum, and other assets “lost value”. This is a misnomer. We price things in U.S. dollars, and relative to the dollar, these assets lost considerable value.

What a lot of people are also slowly realizing is that most participants in crypto markets are and were speculators. This is rather unfortunate, in my opinion. And something I look to track better with data.

The drop in speculators (and many market makers closing up shops) has left a significant hole in liquidity. We are well aware of this. It is very difficult for market makers to run smoothly on some second tier exchanges as the books are pretty dry. We understand this well as we began to explore market making since our team has run autonomous trading systems for half a decade now. Clients are asking us more now than ever to do market making, so our team has begun ramping up these operations for 2023.

As for fundamentals… Nothing has changed. If anything, builders are building faster than ever before. All of us veterans know that right now are the most productive weeks you can have in crypto. It is a blessing to those that can weather such bearish times. I’m seeing some really impressive tech solutions coming to fruition right now. Our team is testing some of them currently and look to broaden our functionality onchain in the coming months – something we’ve been exploring for years now. To us, it’s a testament to the fundamentals of the industry only getting better.

Q: What are the dominant narratives driving this change in market conditions? And what should be the narrative today? What are most people overlooking? We saw a major crypto exchange blowing up, a hedge fund thought to be 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: Operations that take place onchain are becoming more desirable than before. Our clients are pushing us in this direction, which tells us the don’t trust, verify mentality is becoming more prominent. I love hearing this and hope to push everything we do to be fully onchain in the years to come.

I’ll put it this way, never would I have imagined our team would be looking into zero knowledge technology to run part of our operations. To put it simply, the vision is the same, just more crystallized – a process that will keep happening as years pass.

Q: If you must choose one, what do you think was a significant moment for crypto in 2022? And will the industry feel its consequences across 2023? Where do you see the industry next Christmas? Will it survive this winter? Mainstream is once again declaring the death of the industry. Will they finally get it right?

A: The significant moment was GBTC sliding into negative NAV.

As the tide was pulled out in 2022, we learned what was really happening in the waters of crypto, and we see many blowups having origins with the Grayscale Trust product.

Three Arrows Capital, Genesis, DCG, BlockFi, Voyager, and others were all associated with the Trust and as the value of the Trust was more than the worth of all the shares outstanding (negative NAV), market dynamics caused spot demand to wane around April 2021.

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

As for 2023, I still think some of the worst is yet to come. I’m not necessarily referring to price here. I’m talking about operations not having enough cash to weather the winter. Revenues are down, new entrants to crypto are down. While I think this is good in a way because it rids the industry of poorly run businesses, it’ll cause some headline fears for the industry as companies close their doors.

It won’t be the end of the industry from my vantage point. Those that have capital have plenty of runway. And even those that don’t have multi-year runways are staffed by very passionate builders. By the end of 2023 we will see the market coming back to life with lots of excitement. I don’t believe it’ll be a full blown bull market by any means… It’ll be more about projects rolling out the things that they’ve been busy building for the year. You give a bunch of crypto devs a year to build, the results are jaw dropping.

Q: And, of course, we have to ask; many claim that the FTX collapse is setting the industry back to the 2018 bear market. Back to the Initial Coin Offering (ICO) era, to the so-called “Wild Wild West” days of crypto, what do you think about this idea, and where do you think the industry stands now? More importantly, what is Jarvis’ role in this context, and where do you aim to be in 2023 and beyond?

A: Crypto is maturing just like all of us do as we age. You ask anybody who has had ups and downs if they were set back to when they were a younger version of themselves… Most will say they are much wiser, and often the setbacks is how we truly realize our potential. Crypto is the same.

We discussed earlier about how onchain solutions are more in demand than ever… Well the industry had a bad go at centralized entities like FTX, which had one goal of making money, and not contributing to the space.

The space will be wiser moving forward. And we hope Jarvis Labs can help push this mindset. Our team has been busy in many verticals. We have teams building software solutions, new metrics, dashboards, token designs, algorithms, and a few other things that we will unveil soon. But if I had to keep it to one role, it’s to help empower everybody to hold crypto to a higher standard. We can be better. Let’s be better.