The Unsustainability Of The ICO Market – A Bubble In Cryptocurrency?
After China leaving the Bitcoin market and an increasing number of the cryptocurrencies appearing in 2017 a lot of people are wondering: Are we in a ICO bubble? This question is probably on every cryptocurrency investor’s head. As more and more ICOs appear daily – its possible that we’re leading to the new dotcom bubble – called ICO bubble.
Why Its Possible To Have A ICO Bubble?
A while ago, Gnosis sold 5% of their total tokens in an ICO. However, they earned over $12 Million from selling only 5%. With these results, Gnosis would have a $300 million evaluation without evening launching their product. Basically, in an ICO the investors are not gaining ownership. Founders aren’t giving up equity. And investors are rewarded with tokens. The tokens are not a currency, but a way to grant value to the newly born cryptocurrency. As Christian Auty declared for INC.
“Individuals choose to invest in ICOs typically because they believe that the tokens will have value either in and of themselves as currency (e.g., Bitcoin) or because the tokens will have value on the platform to be created (e.g., Ethereum)”
And it’s indeed true. People tend to invest in ICOs with the hope the newly born cryptocurrency will be as big as Bitcoin or Ethereum. But there are also scams. Scams which harm directly the image of how ICOs are perceived by the cryptocurrency community and not only.
“When a ‘company’ raises $150 million solely with a white paper, you know something is definitely wrong“.
While Hyun Lee’s words may sound harsh – this is the reality. A project may look incredible on the paper, but without a proven product or service – it cannot worth $150 million. Yet – people are investing in it. Furthermore, even Floyd Mayweather promoted an ICO and he’s not the only famous person that did this.
As Josh Nussbaum explained in his article – investors are afraid to miss out. So they invest in newly born cryptocurrencies with the hope the price will go up by 300% or more. But not all of the ICOs are legit. An ideal ICO should solve a real problem for people and ask only for the funds they need.
Vitalik Buterin: We Are In An ICO Bubble
During a trip to Israel, Vitalik Buterin declared for TheMarket that “A lot of projects will fail and people will lose money”. Moreover, he declared that a big problem right now is the conflict in the cryptocurrency market. There’s a conflict between people who want to change the world and people who want to get rich. But he also mentions that an ICO is not a bad thing. Basically, it’s a way to validate the idea, give something to the investors and earn the funds necessary to start it.
“I indeed think that we are in a bubble because all the cryptocurrencies are rising and people have a feeling that they will always continue to rise.”
Some people’s greed is the reason why scam ICOs still exists. As the market is still young, people invest blindlessly in ICOs without checking the idea first. They expose themselves to losing their funds and earning nothing in return. This will also hurt Ethereum’s reputation also, but Vitalik is not worried. As he declared, the market will find a way to separate the good ones from the bad ones.
As the cryptocurrency industry moves forward, people should learn which cryptocurrencies will be here after 5 years and which won’t. In this way, a long term cryptocurrency bubble could be avoided. As for the ICOs, investors should start to pay attention at what they invest their money in: the team, the whitepaper and the ideas themselves. Useless ICOs wouldn’t appear if investors won’t fund them.