The blockchain build up is eerily reminiscent of the Dotcom era — inexperienced founders with only an idea raising absurd amounts of money to build a product and take it to market.
We all remember how that turned out. Things went up, things blew up, and later things went up again. This time is no different.
Except that it is…
Today ICOs are accelerating at unmaintainable pace, funded by cryptowhales with billions in Bitcoin and nowhere else to diversify. And the pace is accelerating while the stakes get bigger and bigger.
Tezos, the largest ICO to date has had their fair share of problems. And the truth is non-profits are not designed to be businesses and the majority of the ICO market is preying on dumb money.
That is not to say all founders launching ICOs only want a free lunch, but that is basically what it boils down to.
Blockchain is a fundamentally disruptive technology, but not all businesses and use cases make sense to tokenize. Ideas with little to no merit and little more than a white paper and “well thought” plan are raising 10s and sometimes 100s of millions of dollars. This is dangerous.
What happens when investors realize there is little to no value in these tokens? You cannot create hundreds of categories of “valuable” assets in such a short span of time without having some intrinsic value and not expect problems.
And the conversations I have with founders are almost always “how can our company do an ICO?” rather than, “does our company have inherent, tokenizable value?”
Because until further notice, crypto currencies CANNOT legally be equity/securities. Even though they should be and are the likely evolution of the outdated stock, this is not the case today.
So what happens when you combine a ton of money, overly ambitious ideas, hasty business plans, generally weak founding teams, gullible investors and the idea of a free market trading said tokens…
The fact is, ICOs are the most hyped area of tech today. Inevitably the markets will correct, investors will start to sell and the tokens and companies behind them will crash. Billions of value will be destroyed, feelings will be hurt, securities commissions will step in and investors will likely sue founders.
But none of that matters. What matters is what happens next.
That is the ultimate question. That is the reason our syndicate won’t look at ICOs. These are the gold miners, these are the guys and gals who die trying to make a quick buck. But if history has taught us anything, disruptive technology ultimately wins and recovers, and those selling the Picks and Shovels profit immensely (hence why I invested Matt Galligan’s company The Picks & Shovels Co., a startup building the tools and software to help investors manage crypto assets).
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Which brings us to the end of the article, and the question.
In the Wild West, who wins? How do you position your startup or your portfolio to survive the boom and inevitable bust of ICO economy?
Some startups graduated the Dotcom era to own the internet. Who are the titans of tomorrow and how can planning to pop put them in a position to dominate?
Chaos creates opportunities and as this game plays out and matures, we will start to see some true value.
Join The Future of Cryptocurrencies & Blockchain Round Table with Gil Penchina, Andy Bromberg (CEO of Coinlist), Joey Krug and Lou Kerner on 11/28 @ 11am PST — RSVP on Typeform now.
Bonus: Interviewed a few crypto experts on the topic. Here are their thoughts:
- Joey Krug of Augur and Pantera Capital on Future of ICOs and public markets
- Lou Kerner of Hackernoon on Cryptocurrencies and Future of Monopolies
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