This is without doubt the most timely and also most important article I have written to date, and for very good reason. If history has taught us anything, and it has, we are not thinking straight. So lets diffuse the noise and focus on what we do know and where we are headed with blockchain technology and cryptocurrency.
Last year I read 64 books. Yes, 64. I studied, I learned, I absorbed and made sure I was well positioned to be able to recognize the signs that I would/could ignore due to being blinded by the excitement of rapid gains and constant opinion forming views of social media outlets and the experts in a field where, lets be honest, there are no experts. So my disclaimer is this, I know as well as the next person where this is going or where we are. But I am a student of history and therefore I am able to come to my own conclusions. Speaking candidly, that’s all they are, but I think the logic is sound. So lets get into it.
What is a bubble?
Bubbles form in economies, securities, stock markets and business sectors because of a change in investor behavior and appetite. During a boom, such as the Dot Com boom, people will purchase stocks with the hope of selling these to others for a gain. This continues until confidence is lost, causing a ‘crash’ or huge market correction, where the last to hold are forced to sell for a massive loss. If they can sell at all. Simply put, it’s when equities markets and economies cause resources to be moved to areas of rapid growth and expansion. Once a bubble is over the resources are moved again, causing the value and prices to ‘pop’ or deflate.
Disruption – The hallmark of any bubble
Having worked for the largest ride hailing app and Unicorn company in SEA, I am no stranger to disruption. However, why is this not a bubble? The ride hailing industry is different. It is made up of a series of competitors who vie for business and customer acquisition, almost always with an operating loss. It is not until you gain critical market share that you stand a chance to become profitable. So why is that relevant to this topic? Cryptocurrencies and blockchain technology are decisively different as they do not target one industry alone. The power for disruption is huge across a multitude of industry sectors. In fact, it’s easier to mention industries it can’t impact, than to list those it can. I will make several key points that form my conclusion and here is number 1. A bubble exists while interest and confidence remains. If you will, the theory of what blockchain can do for industry, keeps interest alive when accompanied by compelling arguments, until it fails to deliver and confidence is lost.
Hence, many projects that are currently just promises and haven’t delivered anything to substantiate their claims, are a far bigger threat to this movement than regulators. We need to have restrictions placed on projects who claim outrageous possibilities without any semblance of follow through. Why? This damages confidence quickly and can cause the bubble to burst and resources to shift to other sectors. Practical application of technology will fuel new money into the ecosystem and continue confidence. The disappearance of multi-billion dollar projects with no working products, will do the complete opposite to consumer confidence.
How do you value a concept?
There are few proponents of working technology in the space at this time, however, significant and creditable progress is being made on a daily basis. The part that real world and conditioned investors will have an issue with, is how to value a project which is very much still in conceptual stages. Needless to say, there are projects in existence today, that are valued higher on CMC than real world companies with long established histories, governance, paying customers and high profitability. That does not bode well, when considering how far away we are from mass adoption. However, while the promise exists and it is still possible, the hope will live on.
So when will the bubble burst?
I get asked this question more than any other. With history as our teacher, this follows a very prescribed formula and it goes something along these lines, which brings me to key point number 2. D-day will be when we look at turning concept into deliverable. Roadmap deadlines come and go. Unexpected complications arise. Delays occur and products are released largely unfinished in the race to be first to market. Promises are not met, expectations are dashed and consumer confidence is lost. Delivery falls way below the glossy marketing ads and social media campaigns. Mass adoption seems a futile quest. End bubble.
At this stage you might be asking, are we in a bubble? The simple answer is yes. The simple measure is that we are valuing some projects beyond their real worth. The expectations we have will simply not be met. This is an inevitable part of any cycle, bubble and subsequent crash.
If we don’t study the past, we continually repeat the mistakes we have made before. These mistakes aren’t hidden. They are lessons we can easily access and can readily research and learn from. The trick is to invest early, make gains, recognize trends and then bet against the system. We all know where this is headed, and if we remove emotion from our investments, we stand to gain on the way up AND the way down. This is a simple fact.
The Dot Com Boom
Our most recent history teacher was the Dot Com Boom. I am often scolded for comparing the Dot Com Boom to this current boom and for good reason. They are very different and here are a few reasons why:
- Dot Com Boom was largely restricted to North America
- Barriers of entry for investors were significant
- The market considering the above reached 5 trillion by the end of the first quarter of 2000.
- This movement is global, 24/7 and far more connected to potential investors/speculators.
There were many indicators that things were not right before the bubble burst. Hindsight however is 20/20 and in this instance we have the virtue of the history books to plot the very pronounced course this took. Let’s look at the underlying key indicators.
- This movement is about far more than Bitcoin. Yet, the mass market really struggle to name many other projects in the space beyond this yet. This means, that people are hearing of and talking about BTC and still yet to learn about the underlying blockchain technology and what other projects are setting out to achieve. This is clearly highlighted by the BTC dominance on the CMC charts. With 1 project controlling around 30% of the total market.
- What we see today is a number of blockchain projects producing early iterations of technology. As time goes on, large external companies will adopt the technology but instead build and create their own blockchains in a more centralized way. They will not necessarily look to tokenize their projects. We are seeing a paradigm shift towards this now with the launch of security based cryptocurrency exchanges. This is happening, slowly, but happening nonetheless.
- Institutional money and traditional investment funds and money are yet to even penetrate the market. This will mean a massive influx of funds and a huge increase to the overall market cap. We currently sit at a poultry 320 billion dollars. Very small for a disruptive tech movement with huge potential. These investors will not be looking at the next currency, they will be investing in proponents of the tech. Strong hint, look for projects with strong real world ties, partnerships and adoption.
- Vaporware projects are our biggest threat. When these begin to fail and fold, and they will, this will be extremely harmful to the overall movement and the ecosystem.
- Massive volatility is normal in emerging cycles. Almost every parabolic run up is followed by a pull back. This is common knowledge and a verifiable fact. The market will be a serious of higher highs and higher lows with extreme volatility. This will conclude with a frenzied run up and an almost as sudden run down. The bubble will burst, this is inevitable.
- The bubble will burst once it reaches NASDAQ like levels if history is anything to go on. Meaning there is a long way to go in this movement yet.
Word of caution
One thing we have learned from the past is that if we assess the components of success for companies like Amazon, Ebay and Google, we quickly see they had working products, paying customers and generally partnerships and adoption. These are critical components of their success.
And again, for those who doubt the correlation, just think about what the dot com movement set out to achieve. It was very heavily focused on peer to peer or p2p. This is no different to what we are currently seeing in the blockchain movement.
Therefore I am not bullish on the new hot currency that will be adopted by the entire population of planet Earth. Logically, this won’t happen. I am looking more to invest/speculate on projects who will provide the solutions to problems, that are most likely to be adopted by real world businesses. This will help to greatly narrow your search for long term HODL projects.
So where are we now?
My opinion is my own, but I think with all things considered above and the highlighted key points, the below graph illustrates where we sit. Although my views may not be agreed with by all, the idea of this article is to highlight my FA and the reasons why I am so bullish on the space. I have set a very clear goal to remove myself from the space (in terms of speculative investment at a certain SAFE market cap level) and to then focus more on the tech.
I think we are very much at the black circle on the map below and I am more confident on the investment side of the movement now, than I ever have been before. However, I am very happy to exit somewhere between enthusiasm and greed. As they say, ‘no billionaire ever complained about selling while in profit’.
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