By Richard Lee, Co-Founder and Head of Execution
We’re in a pig of a market at the moment and there’s no question it’s a difficult time to be in the space, regardless of how you’re involved. Right now it feels like all digital currencies are in the eye of the storm. Having been through this in a number of equity cycles, the simple question that participants in the digital currency markets need to ask is whether its simply a case of shutting up shop, or are there certain things that one could look for when assessing opportunities?
At the end of the day, when everything is falling, we need to go back to basics and think why is the freefall happening?
- For any particular project, if there is no use case, investors are likely to be the only purchasers of tokens.
- When prices are falling, investors sell.
- If there are more sellers than buyers (supply exceeds demand), prices fall.
- With nothing else to encourage investors to buy, prices will continue to fall.
- Downward momentum is very hard to stop.
- In general terms, there is no positive news in the market right now that would suggest to investors its ok to re-enter the market.
It’s a problem that more traditional capital markets have seen at various stages over the last twenty years, and what we are seeing now is not really different. At some point in the future, prices will have fallen to a point where investors start to think that the low price justifies purchasing despite the downward momentum. When this happens, the markets will stabilise and over time, the best projects will start to recover and eventually, the markets will reopen for investment.
In the meantime, the question that people assessing projects need to ask themselves is whether there is something about the project that is sufficient to allow it to buck what the rest of the market is doing.
And to my mind, this could only really be one thing – the buyers / users of a particular token are not investors and therefore do not make their decision to purchase based on the price of the token. In such a case, the buying of that token can continue even when the overall price of tokens in general is falling. It’s a simple proposition but very difficult in most cases to actually achieve.
And as a banker, this is one of the things about FENIX that really excites me – I beleive we have created exactly that situation. In good times, I believe FENIX will thrive, as will many other projects, but it is in difficult times, that I believe that FENIX really comes into its own.
For the purpose of this blog, I am going to talk about the underlying principles driving my beliefs. Because if you’re convinced of those, then your only question is whether we can deliver what we are setting out to achieve… and that is a conversation that I’ll happily have with anyone at any time…
1. Music – what a way to get mass adoption…
Music is one of the four online things that I believe people all around the world are passionate about – the other three being sport, gambling and sex. And the devotion of a music fan for their favourite artists is an incredibly strong force.
And this is important – lots of projects are admirable and many serve valid purposes, but how many ICO projects give people a real reason for immediate mass adoption? And by mass adoption, I mean a project that could be adopted by any artist and all their fans in every country around the world from the very moment the platform is launched.
And how big could this be? 98.5% of artists in the world are unsigned – to give people an idea of the scale of the market, we use the number of 8 million bands in the world, and we use a conservative estimate of 500 fans per band… That gets us to almost 4 billion people…
I’m not making any claims here as to how much of that market we will secure or when… But, when you have an industry where almost all musicians everywhere are getting screwed, then it becomes very simple… if FENIX can convince the artists that the platform offers them a fundamentally better
proposition than they have elsewhere, then the potential for adoption by artists is massive.
If you then believe that fans will follow their favourite artists, you can see why we are so excited about the FENIX proposition and its ability to be an absolute game changer in terms of bringing the blockchain into the hands of the masses.
And if we say that a typical ICO has an investor base of say 25,000, it is very simple to see how the fan user base of FENIX is going to swamp that number very very quickly…
2. But users are only part of the story….
But users are only valuable to an ecosystem if they are active. One of the many magic things about FENIX is that we go out and explain to bands why we beleive they really want to be on the FENIX platform. When they join us, we make it really simple for them to bring their fan base with them and we make
the product an immediate winner for those fans…
So when fans join FENIX, they do so because of an already established relationship with their favourite band – its not about FENIX in the first instance and that’s important because (i) its not FENIX doing the marketing, its the band and (ii) it means that they come to FENIX to be active and to do by using FENIX Tokens.
Bring this all together and we have created a new class of fans with an interest in buying FENIX Tokens, and importantly this class is not one that is buying as an investor. And that gives us the potential to be fundamentally different from all of those tokens that have lost 90% of their value this year.
3. Why does this make us different to all the other tokens?
Because when prices are falling and investors are selling, you really need people to step in and want to buy the tokens that are for sale… That is the problem everyone else has at the moment – lots of sellers and no buyers, driving the price towards zero.
So, if you have lots and lots of fans, who have come onto FENIX for access to their favourite artists and who will use FENIX Tokens to do so, then you have a massive pool of alternative demand.
And if we then extrapolate that to bands all over the world, then it is easy to see a position of consistent excess demand for products / access and therefore excess demand for FENIX Tokens.
And because I always like to crosscheck my thinking, the situation is supported by a simple look at the value of tokens in circulation relative to the number of users that we believe we will secure in the
Allan explains this far better than I do, so I will allow him to explain:
“In our white paper, we have announced that the total FENIX Tokens in circulation when fully disbursed will be 1.8 billion FENIX Tokens. A significant percentage of these will be locked up between management and larger investors, as well as those FENIX Tokens disbursed to the Artist Manifesto Trust and those held in Treasury for future exercises.
And therefore, the point I am making is even more robust than illustrated below.
Because if we assume all tokens are available to fans, and if after 6 months of operation we assume we have 50,000 bands in the FENIX ecosystem (not a lot and if that was all that we had achieved at that stage, we wouldn’t consider ourselves a success, yet) and that each band had 1,000 fan app users each (not very popular bands), then a simple mathematical equation suggests tha there would only be 36 FENIX Tokens available per fan.
At a price of say 20 cents per FENIX Token, for example, that would mean each fan could, on average, only have access to $7.20 worth of FENIX Tokens That’s woefully inadequate when we consider that the average purchase price of a product in the FENIX ecosystem would be a multiple of that.
This is another way of considering the supply demand imbalance and will cause the price to escalate, so that the 36 FENIX Tokens are better able to accommodate the requisite average purchase value.
Furthermore, at this stage our intention is that the FENIX China platform that we are developing will also utilise FENIX Tokens. The scale of the China market could increase our numbers of users dramatically, all of which would increase the supply | demand imbalance.”
4. But why don’t these users not care about the price of FENIX Tokens?
Fans wanting to use FENIX Tokens is important but what about the falling prices of digital currencies generally? This is one of the key parts that really excites me as a banker about the FENIX ecosystem.
In considering how to mitigate price volatility, we have implemented two key characteristics into the FENIX ecosystem:
1. We have implemented a FIAT gateway to allow users to use fiat to buy and immediately use their FENIX Tokens; and
2. Purchases by users at this stage will be pegged to FIAT currency, so a person buying a price will pay a fixed FIAT price irrespective of what is happening to the price of FENIX Tokens.
If users in most cases are buying and immediately using their FENIX Tokens, and if the transaction is pegged to a FIAT price, then the price of the underlying FENIX Token is effectively irrelevant to the
In terms of how this will practically work, say a fan wants to buy access to a special limited access pre-launch concert, for which the band sets the ticket price at $100… The fan can use their credit card within the FENIX ecosystem to pay $100 for the ticket and this is the price they will pay, irrespective of whether the price of the underlying tokens has gone up or down. Since they are buying the FENIX Tokens and immediately using them, the chance for token volatility is reduced, but regardless, that has no impact to the user of the FENIX Tokens, or the amount that they pay in FIAT currency for the ticket.
This is critical because it allows fans to focus only on what they want to buy from their favourite bands, free from the worries of what the crypto markets are doing.
Because at the end of the day, FENIX is about what the blockchain can do for the music industry, not about short term investment
So, in all, there are a lot of issues to consider about digital currencies in general at the moment and FENIX in particular. We have not developed FENIX for investment purposes and have worked very hard that its utility prevails, rather than people seeking to treat it as a security.
However, being cognisant of the fact that the world of digital currencies is overwhelmingly dominated by failed investments, we believe we have created a number of key ways to mitigate the risk of price volatility and the effects of overall market uncertainty.
We also believe that this is a reason why people should be able to choose to utilise the FENIX ecosystem, even in times of extreme market volatility. And that is something that everyone should consider whenever they are looking at a project, whether its FENIX or something else.