Has the bubble burst or (irrational pessimism)? (Part 2)

As I am writing this second part, ether is testing new lows (below $300) and the general mood in the crypto space is pessimistic almost hopeless. Lately, voices predicting bitcoin hitting $50,000, ether $5,000 by the end of the year have dissipated and even when someone still makes these predictions, one can hear more anguish than healthy optimism in their tone...

What went wrong?

There were bold predictions of institutional money causing a deluge, pumping the market cap into trillions. This hasn't happened yet for various reasons. Regulatory uncertainty being one of the reasons. When it comes to investing, perhaps, an even more tangent issue is that no one has come up with any solid and quantifiable framework for the assessment of this new asset class. When it comes to trading, there are custodial issues; in addition, the market size is too small for big players, there is just not enough liquidity. Then you have those hideous Telegram pump and dump groups. Furthermore, anyone who has endeavored in the bitcoin OTC space, knows that it is almost impossible to find a real seller who can supply even 50,000 btc.

Exhibit 6. ICO Cumulative Funding.

But perhaps, the biggest issue is that despite $20 billion funding for ICOs (see Exhibit 6) over the past 18 months, very few companies who raised funds through initial coin offering have been able to demonstrate any tangible achievements thus far. Probably the only two crypto projects that have any real-world use cases and users as of now are Bitcoin and Ether. With the former being a pure cryptocurrency without any utility (as in "utility token"), the latter's biggest utility is the issuance of other crypto tokens. Thus the value of these two cryptocurrencies representing the two most successful crypto projects is based mostly on perception or speculation.

The growth exhibited by the crypto market in 2017 can almost be compared to a placebo effect. The great thing about it in medicine is that unlike real medications, it has no side-effects. However, unlike real medications, it doesn't last. Without real growth, real achievements, real positive outcomes, crypto investing public has grown weary and pessimistic.

To sum it up:

1. Uncertainty about government regulation around the world
2. China
3. Hacks
4. Scams
5. Mass adoption is slower than anticipated
6. Lack of tangible success by crypto startups

This makes perfect sense, but were those expectations rational or are we dealing with a case of irrational pessimism?

Most often, this current blockchain/crypto revolution is compared to the dotcom revolution. It is understandable why this comparison is being made, yet in my opinion, it's not completely accurate (I will explain it below). Most of the dotcom companies failed, but more importantly, even those that eventually became successful, did not achieve success overnight. For example, Google was envisioned in 1996, received initial funding in 1998, became profitable in 2001 and became #1 search engine around 2003.

The comparison is inadequate because the transformation ushered by dotcom was more straightforward and linear business-wise. The Internet was becoming more ubiquitous and faster, its utilization promised a more direct and efficient access to the clients. The value proposition was easily discerned by businesses and clients alike. This time around, it's not so clear. "Decentralization", "distributed network" , "disintermediation" have become buzzwords often overused by those who don't fully understand the underlying technology and its potential. Try explaining blockchain in a 30 second "elevator pitch"... or to a 60-years old CEO or the board of a major company. Its not easily explainable, not easily and quickly implementable (there aren't any fully-functional industrial grade blockchain networks out there) , its effect on the company books is not easily quantifiable. One of the biggest obstacles to its mass adoption is there is no demand from the end users - an end user can't possibly appreciate an impalpable advantage of a blockchain enabled service.

Back to the current pessimism. Perhaps, all of us were expecting too much too soon; the withdrawal from this delusion is no doubt painful. Yet the other extreme - irrational pessimism isn't any healthier. There is a joke about Russian optimism: A Russian pessimist noticies "tomorrow is going to be worse than today", a Russian optimist replies "tomorrow is going to be better than the day after tomorrow".

It is well-known that about 90% of traditional startups fail. It seemed logical to apply the same numbers to the crypto startups. However, I believed that the success rate of the latter would be higher for one simple reason - they are sitting on tons of cash. Thus, even if the original idea and/or team wasn't brilliant they would have enough runway to pivot and pivot again to finally stumble on something that makes sense. But if this bearish market continues much longer this may not be the case. For various reasons, most ICOs hadn't converted their crypto assets into fiat right after their ICOs; now their runway has suddenly become much shorter.

The more ICO projects start delivering on their promises, the sooner the current state of pessimism will dissipate.

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I have been fortunate enough to be a part of a couple ICOs that have delivered something tangible months after the ICO:

PundiX has already shipped 5,000 XPOS devices

CREDITS Blockchain Platform has released alpha

It would be interesting to build a list of ICOs that have already delivered (at least partially) some product or service.

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