The crypto nightmare to come

I can’t stop thinking about it because, no matter how bullish how i am about the future, i have a consistent bad feeling lately, maybe because i have memories of the old internet times. I had to write down my thoughts and share them with you.

The music as we know it may soon going to stop in the crypto world. Well at least pause for a while.

Spending time and energy in the space i am sensing a high amount of signals pointing to that direction. The most important one is that a few important countries do want to regulate the Crypto World but won’t manage to do it quickly. It’s complicated and will take them time to figure it out. And most regulation authorities may not have the time to wait for a solution in the view of so many ICOs getting scammy and out of control.

The possible dark scenario

So here is what i think may happen in the short future: Because they can’t ban cryptos (and don’t have an interest in doing so) like China did (and i am not even sure it will last long as elections are coming up…), i believe the SEC, AMF and a few other national security organizations will target a few high profile ICOs (not just scammers this time) via exchanges and those same exchanges will have to delist them because they qualify as security. I don’t think those authorities have any other way short term to address the current mess but to start with examples. Those moves will create a wave of panic in the crypto world which would create a flash crash in most valuations. The SEC won’t have to go after all the tokens (and they physically can’t — because it s a global play) they believe should be removed, they will just need to asphyxiate the market out panic. Millions will be stuck with tokens worth very little and don’t believe decentralized exchanges will come to the rescue: it will be a psychological freeze. Of course new comers to ICO will dry up or stop immediately and the music will stop for a while.

Facebook, Apple and all fast growing marketplaces have acted in a similar way when they want to stop a wave of apps acting in a negative way in their market. I don’t think the authorities have any other realistic option given the speed and excess of the market.

But is it really a bad thing?

I don’t think so. I think the music as we know it has to stop. Allowing companies to get their unbaked ICO tokens immediately traded when no product is even available (and won’t be for a long time) makes only the game of pure unhealthy speculation. Allowing people to buy tokens they don t understand, will never use because they are not the natural users of those tokens (Kik i am looking at you), and will never be, can only attract day traders and short term flippers. This is not the “network effect” that is claimed in most white papers.

I think too many ICOs don’t have what it takes to deliver on their promises today: vague teams, unclear road maps, uncommitted or incomplete teams,… But here is the thing, the market need to test the good projects. There are too many ICOs funds, Crypto Funds, more than there are projects to fund. There will be soon more exchanges that tokens that you can trade. Just insane.

Those who raised will be tested during this dry period. Many will survive enough time because they raised a lot of money but they will have to create value quickly so the market believes their token is still worth something and recover from an inevitable market crash.

The big wash will keep the best players in the game and i am sure that out of 1000 ICOs a good solid 10% will make it over a long period. By the time those winners find their way up, build real value, networks effect and establish an intrinsic value to their token, the regulations will be in place and healthy ICOs will take place again. Maybe the survivors will organize even a second wave of ICO to boost things up.

During that time investments will keep up but in fat protocols and i would not be surprised to see, in a context where many traditional economies may go west and classical store of value models become untrusted, the value of Bitcoin explode because it is uncorrelated to ICOs. I think Ethereum has a good chance to grow once those bad ICOs stop and that the world can focus on getting Ethereum migrated to a scalable protocol that will really be able to support ICO funded Dapps and companies that promise the Moon, but just can’t deliver it today.

I would not bet that the music keep going for tokens for a long time, at least for a majority of them. Clean up time is due. And i don’t believe it’s far.

So what to do in this context? Be long.

Does that mean you should stop investing in crypto? Absolutely not. But if you do make sure you are super long. Invest only in things you seriously believe you can HODL for over 2 years. Personally i am going to reduce considerably my positions on tokens and ICOs. I am super long on a few of them but going to recenter my positions on main coins (at least those i really believe in) until i see more clearly. There is no doubt in my mind we’re building a multi trillion dollar economy over the years but this requires a small reset until we reach that.

Am i the only one to see that coming?