In light of the recent price drops in the financial crypto markets this week, I feel compelled to make some comments.
Everyone is wondering what is going, and why are crypto prices falling so precipitously.
In August of this year, we were already at a market cap of $190B, down 77% from the January 2018 highs, as I outlined in this post, The Long Blockchain Crash. In retrospect, that was an early warning for what has happened this week, as total market cap touched $145B and is about where we were in early October 2017. In essence, the gains of the past 12 months have been erased so far.
There is no doubt that prices will eventually settle towards a given bottom (not zero), then we will begin to see the better coins rise again, hopefully less aggressively than before. But the question on my mind is whether the current crash will also flush out some of the bad elements and habits inside the blockchain market. Bad things always take longer to get un-done.
Undoing the Mess
The blockchain market was messy. It is full of cowboy attitudes. We pushed the limits on what tokens could do. And we pushed the limits on how much money was needed. We conflated everything by extrapolating into the future without a real foundation of the present.
Being Humble Again
If we rewind to where we were in 2017, we were more hungry and more humble. Will we return to being more grounded as the dust settles? Yes, ICOs provided a good economic windfall for people and projects, but money doesn’t solve everything. For some people, too much money changes them for the worse, instead of for the better.
Regulatory headwinds and uncertainties have always been prevalent, but the recent SEC actions have turned into deadly storms, with casualties. In retrospect, the SEC is exploited the decentralized nature of the blockchain ecosystem, and poked at its weaknesses. There is no single, strong voice for the industry that has the power to face regulators cohesively, despite a few advocacy groups that were doing their best, given the circumstances. In spite of these action, in my opinion, there is a silver lining because the SEC positions are much clearer now, if you read their recent public statement entitled Statement on Digital Asset Securities Issuance and Trading. And the Singapore authorities also updated their policy with ICO, via this update: Regulator’s Column: What SGX expects of listed companies conducting an Initial Coin Offering (ICO). Both of these updates from two of the most important regulators in the space point to increased clarity, which is a positive.
Security Tokens Expectations
Security tokens are not going to solve it everything, and they are not a boon for getting some of the prospective utility tokens out of the hot water they put themselves in. You still need to have a successful model behind these tokens, and the challenge of getting market traction is not diminished. So, they aren’t going to save everything. This short article does a good job explaining it, Security Tokens Don’t Solve The Regulatory Mess of Utility Tokens.
ICOs lack of transparency is still there. The mess has already been done. For live projects that took money in the past 24 months, now is the time to show real progress. Most ICOs promised the moon and the skies, but few are delivering. The lack of accountability is for real, despite a denial. For those thinking about decentralized governance as the next step, that is not going to solve this accountability dilemma.
Hype vs. Reality
Projects need to curtail their announcements to actual achievements, not conflating their future with promises. We oversold everything. The White Paper is dead. I’ve stopped reading them a long time ago. White Papers are useful if you have truly devised an original technical contribution, but they are not to be used as a marketing ploy to impress and gain credibility.
Blockchain software tools are still immature despite 3 of the top ones reaching over 1 million downloads (Metamask, Infura and Truffle, read my post, The Blockchain’s Magical Million Users Club). We are currently trying to do too much with blockchains. For many cases, maybe only 5% of a given application needs to touch a blockchain. Blockchains are not for everything. They are perfect for passing value in a peer to peer manner, but storing everything on the blockchain is still a daunting task.
Too Many Crypto Hedge Funds
I’ve said this many times before. Too many crypto hedge funds were formed too early in the cycle we are in. Many of them will shut down by end-of-year. November 15th was a key date for investors to give notice to hedge funds that they’d like their money back, so hedge funds started to liquidate their positions, precipitating this week’s crash.
What will come out of this last downturn in prices? My hope is that we return to the sobriety days of early 2017 when ICOs weren’t so easily concocted, and when realism preceded fantasy. The sin of irrational exuberance has already been committed. Now, we need to commit to rational reality.
The psychology of bad markets is difficult to pin down. I hope the aftermath of the current downturn makes many of us smarter, and encourages some of us to give-up trying. I hope it brings better products, results and projects to the market. In Web parlance, the real Blockchain 2.0 era has not really started.