Crypto Future: Seeking Rational Valuation
All generalizations are stupid. These days there are loads of prognosticators calling crypto a huge scam, or predicting that Bitcoin will go to zero, or that Ether will become redundant. In a recent CNBC interview, the famous scammer Jordan Belfort claimed: “The whole thing is so stupid. This thing is going to evaporate like a mirage.”
Jordan is a convicted felon owing to his fraudulent stock manipulation schemes going back to the Dotcom days of nearly 20 years ago. So you have to give him credit for spotting opportunities to cheat the public. But his opinion hardly adds anything new.
We all know there are crypto scams. This is why it is so important to remember that all of the threat of regulation is not bad. It holds the benefit of cleaning things up so that everyday crypto users and investors don’t get whipsawed by pump and dump schemes.
But what is Jordan’s actual level of knowledge about the uses and technological benefits of blockchains and cryptocurrency? Not much I suspect. I know people that spend 12 hours a day on the topic. In the absence of real understanding, generalizations come in handy.
Even serious minded and well informed crypto followers get carried away if, and when, they start believing some of the preposterous visions laid out in the average ICO whitepaper.
Just look at the so called Ethereum killers. EOS and several others start out as a Dapp on the Ethereum platform while building their own mainnet. Before the launch, there was a lot of hype about how the EOS Mainnet was going to permanently change the game. Since then the story has changed due to the numerous network issues that followed.
EOS is currently trading near $6.50, comfortably above its $4.50 low of August but well down from the April high of $22.00. This is not a condemnation of EOS or their Mainnet. Just like the Internet, the crypto world’s development takes lots of time and money.
We have to remember that EOS is well funded as one of the top 10 ICO’s of last year and they actually have something to show for their time and money. So treating EOS seriously is a smart move.
Here Is The Point
There is a provocative article with the headline: Cryptocurrencies Need to Die for the Market to Live from the folks at hackernoon.com. The author, Anthony Xie, points to a study by investinblockchain.com where only 36 of the 100 largest coins and tokens actually have a working product. Xie suggests that the crypto market is too robust and that the trading in all 200+ cryptos are closely correlated.
For investors Xie’s observation is dead right. Why should all cryptos trade in such a fashion? After all, when you take away the complex technology we are dealing with the area of evaluating both the rationale for their business plan (whitepaper) and the likelihood of that any business with limited or perhaps no management experience being successful.
We have mentioned on several occasions the venture capital investment model that assumes that only about 5% of their investment projects produce positive results. That usually takes 3-5 years for these deals to prove out. Those that do, however, make up for a multitude of sins with the other 95%.
ICOs are certainly no more advantaged in most cases than venture capital projects. If we take the top 10 cryptocurrencies, how many have five years of building accomplished beyond Bitcoin, Ethereum, Ripple,Litecoin and Stellar: very few.
That being said why should the prices of all crypto trade in such a tight correlation? The answer is because the investment world is still applying generalizations to decisions. Overall, this will change in time and that will serve the larger more developed projects.
Featured image courtesy of Shutterstock.