A Bubble Bursting Scenario

From traditional fund manager Denny K comes a fairly reasonable article about how things could playout in a similar manner to the tech crash. 

Denny begins with a few comparisons:

In the .com bubble existing technology firms listed on the Nasdaq sometimes decided to add “.com” to their company name and saw their shares surge, sometimes 30–50%.

Well, guess what is happening now…

During the .com bubble, the major problem for analysts and investors was that most of the companies had losses and not profits, so there was hardly anything to value them on.

Fast forward to today — the same is happening again. While I want to be clear that there are important differences in that Bitcoin does have some sort of a value as a “store of value”, people making up new ideas like network value for token (not so much for Bitcoin) just makes no sense.

Then he mentions the differences that makes this even more risky, including the ridiculousness of ignoring non-released tokens, which we’ve posted about previously:

if you look at coinmarketcap.com, the “go-to” site for crypto market caps, you will notice that they only count the “Circulating Supply”

In equity markets, of course there are occasional scams and there were IPOs that turned out to be founded on not much more than a pyramid scheme. However, looking at crypto ICOs, the sheer amount of obvious scams is breathtaking.

While the .com bubble had its fair share of retail investors, the main driver were the institutions. In the crypto bubble, the field is made up almost exclusively of newcomer retail investors that probably have never held a stock in their life.

And he ends with his projections of how this may play out:

all ICOs will lose 90%+ of their value (just like during the .com bubble…) regardless of the strength of their projects. I keep bringing this up, but Amazon fell to 5.5 USD / share in 2001. It now trades at 1000 USD+. So also the good projects will fall 80–90%…

At the same time the utility token related to the ICO boom will probably crash in tandem

Cryptocurrencies such as Bitcoin will also be impacted, but I would expect an almost V-shaped recovery there as the listing of futures on the major exchanges, the formation of ETFs and more regulatory certainty will undoubtedly introduce institutional money to the space and more than 90% of that will flow into Bitcoin. Make no mistake though, Bitcoin will also suffer.

In the aftermath of this ICO carnage, I would expect the same story as with the internet firms from 2001. Really good projects will give their token holders equity-like rights and fulfill securities regulations. New ICOs will be strong companies that will have a good value proposition and again, will actually be selling something valuable and not just hot air. When this ICO 2.0 phase starts, platforms such as Ethereum will also strongly recover.

I would therefore personally not invest into any random ICOs at all nor their respective token at this late stage in the game. The likelihood you can buy all of these cheaper at some point over the next 12 months is extremely high.

Even if you completely disagree, it’s well worth a read as he brings up some great points.

Leave a Reply

Your email address will not be published. Required fields are marked *