Personally, I don’t want to get into a debate about what defines a bubble. In part, that’s because I’m aware of the hostility out there. Discussing the possibility of there being a bubble within the crypto space is robotically interpreted by some as a criticism of the concept of cryptocurrenices itself.
Let’s approach this from a slightly different angle which begins by working with the assumption that there is a bubble. If that’s the case, then what is the worst that could happen? That should be a reasonable question for everyone to ask since no-one can say definitively that we are not living through a bubble.
I saw a few more examples today of ICO-issued tokens experiencing high percentage jumps recently without any changes to the fundamentals underpinning the project itself.
When I jumped into a telegram channel to enquire about why Enjin Coin, for example, has been undergoing a strong upward swing in its price over the last two weeks, I was provided with some general answers but nothing concrete. “Market forces,” was one reply. There was nothing to indicate a material change to the project.
This appears to be a general pattern that has emerged over the last couple of weeks, likely as a result of a new wave of crypto-enthusiasts arriving into the alt-coin space on the back of high profile media coverage of Bitcoin’s inexorable climb to the 20k USD mark.
So What’s The Worst That Can Happen?
Whether all this qualifies as a bubble is, as we’ve said, not the object of this discussion. But there is a concern, however, that some of these coins are attracting the wrong kind of investor.
If a token’s investors is top-heavy with people who have researched the project, have a grounded understanding of the product/service of what the token delivers and who see genuine promise in its ability to take on value once the product is in place – and have invested for that reason – what you have are people who are likely to hold on to their token over the long-term with a consequent lack of volatility, relatively speaking, in its price movement.
If, on the other hand, a token attracts a series of investors on the back of some paid marketing from a quack Youtube influencer who shills the product to a large following who are simply looking for the next big moon opportunity without engaging critically with the proposition they are buying into, then the outlook – in the short-term at least – for the token’s price movement doesn’t bode well.
Most of these investors will simply panic sell at the first sign of a dip in price. If these people represent the majority of your token’s demographic, expect those dips to be amplified, and don’t be surprised to see the token becoming the object of disparaging commentary whether the underlying fundamentals justify it or not.
Fundamentals are Key
This is why the fundamental characteristics of a token are its most important. If the token underpins an innovative concept backed up by a solid team with an established history of good execution and marketing, then whether the token finds itself being piggy-backed by short-term moon-hunters or not is no longer a concern.
You should sit back and relax – or simply move on to research for your next ICO.
This is why, when I see a project like Loomia – an established company with a proven track record that is looking to break new ground with its pioneering concept of smart apparel – short-term price peaks and troughs become irrelevant.
Fortknoxter is another example. This is a platform that is seeking to serve up one single, accessible dashboard that provides encrypted communication services for email, chat and file storage.
These are cases where we are seeing innovative projects managed by solid teams whose ability to execute implies a high probability for the token to take on natural value over time – and lots of it, hopefully. Organised pumps and dumps or hype-based price movements become, in the grand scheme of things, irrelevant to the token’s long-term health.
Fundamentals, However, May Not Be Enough – Go Find Some POC
Whilst we might be agreed that solid fundamentals are important, we might also need to take note of the fact that these might not be enough. A project may tick all of the boxes highlighted above but even this is no guarantee for that one essential ingredient that will render a project successful – mass adoption.
This is why we need, when all else is equal, to privilege projects with a proof-of-concept behind them. Granted, a majority of ICOs do not even provide a working MVP before running to market for finance. However, they do exist.
Looking at FCFL, for instance, we see a radical new idea being proposed by a first-rate team with an established history in the industry who want to create a real-life football league where fans themselves dictate actions on the field of play.
It sounds like a fantastic idea on paper but there is no guarantee that this can work. It needs proof-of-concept. In the case of FCFL, they did this by creating one team from thin air to participate in the Indoor Football League. The experiment was a success that they now felt that an entire league could be created on the back of the concept. Hence the FCFL project.
Once again, if FCFL’s own token price found itself the subject of speculation attacks, pumps and dumps etc, there will be no real need for HODL’ers who have done their own background research to worry. They have invested into the project with the conviction that the project will taken on value … over time.
Noughties Tech Bubble May Be a Good Comparison
The noughties tech bubble may be a good comparison. At that stage, the internet was still a relatively new concept for most and companies which went to IPO all benefited (initially) from the rush of investors who were keen to cash in. Lots of these investors were keen to purchase shares in any company that self-described as an internet tech company.
Of course, there came a point when these same investors began to twig that they had been ploughing their money into projects whose fundamentals were found to be unsound. The result was a general collapse in the market – and even those companies with sound business models saw their share price crashing as part of the generalised panic.
My feeling is that we can expect something like this happening again some time very soon in the ICO space. The general frenzy will result in a crash. However, just like the Tech Bubble crash, from the ashes will emerge precisely those companies that were able to weather the storm for one very simple reason – they had saved for a rainy day and were underpinned by sound business models.
These were the Amazons and e-Bays who went on to become giants in their field. Will upcoming ICOs like DataWallet or BABB fall into this category? The former is an established company that is looking migrate its business to the Blockchain as it offers a more secure, more robust model to personal data privacy. The latter is looking to democratise banking by lowering the entry barrier to banking services for some of the world’s 2.5 unbanked adults by putting banking on smartphones.
There is no way of knowing. But by studying the underlying fundamentals of a project and the potential value that their tokens can take on – provided the project is lead by a solid team with the ability to execute – then we can begin to identify ICOs which seem to demonstrate this kind of promise. And if you manage to put even a modest sum of money into the next Amazon, Google or Facebook, then the rewards seem set to be huge.
That, however, requires work. It requires serious research. So if you see an ICO of interest, why not simply raise it in our forum – and get a discussion going to see what others are thinking of the prospect.