ICO Bubble? Bitcoin, Ethereum and Other Crypto-Currencies are Only Getting Started
It’s Thursday, August 31st, 2017. Bitcoin and Ethereum are at or above their all-time highs. How can a single Bitcoin be worth $4,727? If you bought in 7 years ago, you’d be sitting on 472,710% gains.
Incredibly, for all the mindshare Bitcoin has worldwide (who hasn’t at least heard of Bitcoin at this point?) the entire market cap of Bitcoin and all other crypto-currencies combined is only $171 billion USD.
That may seem like a lot — $171 billion is nothing to scoff at — but Apple Computer is worth 5x, Saudi Aramco 7.5x, and gold as an asset class (gold bars, etc.) is 46x the total value of all crypto currencies. And I would argue that Bitcoin is worth at least as much as a world-class company. And Bitcoin is far more useful as a store of wealth than gold, which is heavy, inflationary, hard to transport, and hard to secure and store.
Which leads to the next topic — Initial Coin Offerings (ICO’s). If you read my favorite tech news website Hacker News, they will tell you every ICO is a scam, all ICO purchasers are idiots, and the future for everyone involved in ICO’s is a prison cell.
Why does Hacker News hate ICO’s? ICO’s have enabled hundreds of new companies that would never have qualified for venture capital to raise funds. This has created thousands of jobs and launched incredibly innovative new businesses and funded intriguing new technologies.
Some might say that 99% of all ICO’s will fail. Well… VC funds expect 75% of their investments to fail completely, 20% to break even, 4% to be profitable, and (hope) 1% to be mega-profitable (Google, Facebook, etc.). And considering VC’s hear 100 pitches for every company they invest in, their filter isn’t really that accurate!
The important change happening with ICO’s is the democratization of capital. In the current VC and angel investor world, entrepreneurs can expect to take 3 months to hustle in order to raise a proper round. Relationships are of paramount importance — a faux pas to a rich, well-connected investor can poison you with the investment community, or at least his or her section of it. A 20 year old kid with a ground-breaking idea has to spend months selling it to hyper-rich old money venture capitalists — “The Establishment” — who likely don’t understand it at all.
In the future, of which ICO’s are just the beginning, entrepreneurs will raise significant sums of money much easier than is possible currently. All raising capital will take is a good idea that appeals to a very small fraction of the global audience. The most audacious, improbable ideas might find a small cohort of global investors willing to stake money into it. Using the blockchain, people can contribute tiny amounts of money to lots of projects, adding up to huge sums.
Traveling around for months pitching to check-writing venture capitalists is dead- DEAD. The VC’s just don’t know it yet. It might take 3 years, 5 years, 10 years — but the blockchain will make raising capital much more efficient and easier. And early investors who get spooked will be liquid immediately — not locked up for 5 years — which will make early-stage investing significantly less risky.
ICO’s, powered by crypto-currencies, are the first blow to the armor of traditional early-capital investment infrastructure. As crypto-currencies get more widespread, expect their utility and value to skyrocket, and the ability of entrepreneurs to raise money to get much easier. Undoubtedly this will benefit the world and make new, innovative ideas find easier funding and push technology to new limits.
