Initial Coin Offerings: Are We in a Bubble?

Yes, And it is a good one.

If you have been actively following the blockchain circuit over the past few months, then you must have come across the term Initial Coin Offering a.k.a ICOs.

But in the past few weeks, There are more tweets and articles talking about ICO Bubble than the actual ICOs.

And if you take some ICOs like Westeroscoin, It sure as hell seems to be.

But it became 100% clear when I saw this tweet.

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just got a call from my college roommate, who's now a surgeon. he called to say he invested in an ICO. he then asked me what it was. #bubble

— @avishbhama

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HOLY SHIT. IT’S A BUBBLE.

RIGHT?

And why not?

A 3 months old startup getting a Valuation of $150 Million is pretty crazy. I mean is something like that even possible?

Now, Let’s go back in time to a very similar 1998 Dotcom Bubble and see what happened over there. In the words of great Erlich Bachman,

It was Bachmanity Insanity.

It started when Tim Berners Lee bumped into a magical thing that was going to change the world forever called World Wide Web and somewhat gained traction Marc Andresssen came up with Netscape in 1995. But no really knew what were the possibilities.

This led to almost everyone in the Silicon Valley thinking they can make the next Unicorn by putting every thing accessible virtually. 15 days old startups were buying advertising space at Super Bowl, Lavish launch parties were a routine and the insane part was that expenses for these parties were covered by selling stocks to the party organizers and it actually worked.

There were more IPOs in the those years than any other time period.

There is a story by Mark Cuban, who founded Broadcast.com during those days. Prior to the company’s 1998 initial public offering (IPO), Cuban met a lot of fund managers.

“The vast majority of people in the meetings had no clue who we were or what we did,” said Cuban. Their lack of knowledge “got to be such a joke” that Cuban and his partner “used to purposely mess up to see if anyone noticed”.

Despite being “completely clueless”, every single investor who met Cuban placed bought maximum shares possible on the day of offering, and Broadcast.com rose 250 per cent on its first day of trading before being sold to Yahoo in 1999 for $5.7 billion.

Seems like the ideal time to be an Entrepreneur,NO?

BUT,

What followed was market carnage on a grand scale. The NASDAQ lost 78 per cent of its value over the coming years. A market capitalization of over $1 Trillion was wiped off NASDAQ within 30 days.

By 2004, more than half of the internet companies created since 1995 had disappeared. Technology investors in Silicon Valley suffered a lengthy hangover.

And it’s not that people didn’t know it was going to happen. They somewhat knew, but

No one likes to miss out on a Party.

FOMO a.k.a Fear Of Missing Out played well with the investor, entrepreneurs and other stakeholders.

After that, for a while it was a period of uncertainty in Silicon Valley. Investors became cautious, jobs were lost on a grand scale, many entrepreneurs switched back to their old jobs.

BUT,

Forward 15 years, Look where we are now. Silicon Valley is the truly the place which drives innovation in the world in almost every sector. (Yes, Name it and you will find a bunch of startups trying to revolutionize the field.)

If it weren’t for the 1998 bubble, I don’t think we would have a Facebook, PayPal, Google among many others. Because that’s when people realized on what they should actually be focusing on instead of putting everything(Yes, Literally everything) online.

It is peoples’ optimism for a better future that truly drives innovation.

And 1998 Dotcom boom was just a blip in the radar in this long journey of human evolution.

If you try to relate the dotcom boom to the current ICO boom, You will find a of similarities. The insanity, the uncertainty about the new paradigm,the excitement, the unnecessary/stupid ventures, everything looks very similar.

One of my favorite people, Sam Altman, President of Y Combinator talking about the ICO funding model, says that the overall market is “definitely a bubble right now” — but “there is something underlying them, which is why smart people are fascinated.”

According to Vitalik Buterin, Founder of ethereum, A lot of ICOs happening today are unnecessary and will yield zero returns to the investors in the long run. But he also says, “It would be a mistake to underestimate the value of ICOs or to say that they are a bad thing”.

Markets have a tendency to remain efficient in long run and once that comes into play, such unnecessary ICOs will be wiped out.

In my opinion, The next 10 years will truly determine the way world is going to use Blockchain. We are still in the process of getting the infrastructure right. Once that’s done, then we will be see evolved system which will have the potential to replace giants like Facebook and Google.

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