Looking at some of the challenges facing cryptocurrency and discussing whether this is a good time for an ICO to attract technology investment.
A string of cyber-heists that have syphoned value from some cryptocurrencies and the sector has also been subject to abuse and fraud. This creates a challenge for technology investment.
News sites around the world have been posting articles describing how much value cryptocurrencies have lost over the last few months and how dangerous investments in the instrument can be. It’s been estimated that around US$800 million worth of cryptocurrency [www.wsj.com/articles/why-cryptocurrency-exchange-hacks-keep-happening-1531656000] has been lost in 2018 alone.
The narrative that’s been evolving is that the cryptocurrency is basically a lawless market where the unprepared (and, to be fair, one or two of the relatively well prepared) are losing their investments to fraudsters and opportunists of all kinds.
This in turn has attracted the attention of the regulators. The Reserve Bank of India recently cracked down on cryptocurrencies, a move that followed China’s well publicised crackdown at the back end of 2017. Iran, Pakistan and Zimbabwe are in the process of following suit [www.insidebitcoins.com/news/bans-emerging-as-central-banks-push-back-on-crypto-adoption/159940].
Cryptocurrency bull market…?
There are plenty of people predicting that the cryptocurrency bubble is in the process of bursting, and that smart investors would do well to sell before the value of their carefully nurtured investments become about as valuable as a handful of wilted tulips.
This is probably missing the point. Cryptocurrency is in its infancy, and while the market has been widely unregulated, the reward has justified the risk in the minds of some investors. The challenge is that this has drawn in some less savvy investors who have, as the parlance goes, lost their shirts.
In some ways though, this is a cycle we have seen before. Someone creates a tradable instrument, a few people start to make healthy returns, other people spot an opportunity, get excited and leap on, someone says something about the emperor’s new clothes and the market suddenly bursts.
The point is though that after the bursting of pretty much every bubble, whether it’s tulips in the 1630s, gold at numerous times throughout history, or the dot com new economy in the 2000s, the market recovers to a realistic, healthier level. We still buy tulips. There’s still a market for gold. Internet companies, you’ll astonished to hear, still exist.
The challenge for ICOs and technology investments
As a result, the current interest from regulators around the world should be welcomed because it should help create a level playing field for investors that will add to the tradable liquidity pool. Yes, there is a chance that the loss of volatility will remove some of the opportunity for extreme profits, but for the majority of players there will be more opportunity to make consistent profits.
The confidence to make technology investments
If people can make a technology investment though an ICO or an ITS with the confidence that comes from knowing the watchdogs are in place, then technology start-ups are more likely to be able to turn a good idea to a great product.
Ultimately this boils down to what is a cryptocurrency for? Is it purely a tool for traders and investors, or is it supposed to convey an actual value and be a way for people to safely make technology investments? In the end, it’s probably both.