The rate of adoption in crypto is similar to other emerging technologies, so why does it feel different?

Jul 18, 2021

Much has been made about volatility in the crypto space, with a variety of factors influencing recent movements in the market capitalizations of both 'established' and 'emerging' digital assets. While this volatility is different from most asset classes, it is reflective of a concept familiar to technology operators and investors - the S-Curve. Essentially, the S-Curve is a concept that describes the evolution of adoption of the new technologies, which is never a straight line.

This conversation, albeit a few years old, provides a great overview of how S-Curve dynamics influence the crypto space, driving network effects that can cause step changes in adoption over time:

a16z Podcast: Cryptonetworks and Decentralization -- Building Blocks
Listen to this episode from a16z Podcast on Spotify. with Chris Dixon (@cdixon), Ali Yahya (@ali01), and Devon Zuegel (@devonzuegel) “Show me the incentive and I’ll show you the outcomes.” At the end of the day, observes a16z crypto general partner Chris Dixon, Satoshi’s whitepaper [the original bit…

To be clear, while there are myriad debates about whether the adoption of Bitcoin or Ethereum (or any other altcoin for that matter) follows the S-Curve perfectly, that is likely not the most important argument to be concerned with right now. What is important to remember in the face of the volatility we are seeing is that the asset class is still very young, so there will be peaks and valleys in terms of perception of value - which happens to be openly reflected via market capitalization - as adoption grows.

What is interesting about this is that events that drive significant changes in adoption often do not necessarily coincide with specific changes in how the market values a given asset, particularly because we are seeing the digital asset space evolve while it is actively traded - a significant difference vs other asset classes.

It is important to understand where you think a specific market is in terms of S-Curve dynamics - if you believe that the market is early enough and that adoption can be explosive enough to mirror this type of an evolution, it may be wise to take the long view from an investment standpoint. In the digital asset space, one can make this argument, and thus short-term fluctuations in perceived value are likely less important than where we are in terms of the mid- to long-term progress of the overall market. In addition, as we approach the growth stage of the curve for specific assets in a given space, adoption becomes very significant, very fast.

The experience feels different in crypto because many market participants have never had exposure to these types of investment opportunities, and because market values are more transparent than they have typically been for most emerging assets. As such, we’d suggest that you keep your head, take a breath, diversify… and settle in for the ride!

The Idea Adoption Curve
Mapping the technology adoption curve to ideas gives insights as to which business models work on which parts of the addressable market.

Avicenna capital

crypto / fintech / macro research

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