How The Bitcoin Revolution Will Affect Entrepreneurs by Deep Patel
Tracking mainstream media coverage of crypto currency and block chain helps me to track the growing awareness and current perceptions in this case the entrepreneurial hive mind.
This interview had a few interesting highlights on forecasting, ICOs and mining.
Forecasting
Patel: How can people forecast the pricing of Bitcoin and predict spikes and collapses?
Osinoff: Well, they can’t really. Spikes and collapses are largely either (a) a market reaction to new information or (b) the entrance of another big player into the market.
There are certain events that have proven to reveal some of Bitcoin’s sensitivities. For example, when the SEC denied the approval of a bitcoin-based ETP (exchange-traded product), Bitcoin’s price fell 18 percent. Since Bitcoin is largely in a legal gray area, almost any mention of Bitcoin in the United States political system regarding cryptocurrencies as a whole tend to have some impact on Bitcoin’s price.
Bitcoin is currently hovering around a $41 billion market cap. To see a big player make a substantial impact, they would essentially have to trade hundreds of millions or billions to do so. Other cryptos with smaller market caps see huge variations in price. However, if traders see a sudden unexpected dip caused by a big player, they might be inclined to sell their Bitcoins as well. The sudden influx of sell orders attracts more sell orders, and the snowball effect can cause a short-term pullback.
An interesting thing to note is that Bitcoin’s supply is capped at 21 million bitcoins. As more and more people become interested in buying Bitcoin, and since there isn’t a central agency to push out new bitcoins based on market demand, the price is seemingly uncapped. Additionally, people are able to buy small fractions of a Bitcoin and that makes entry into the crypto market very easy for virtually anyone.
ICOs
Patel: What do ICOs mean for launching a venture?
Osinoff: ICOs are changing how many new ventures think about raising capital. Instead of searching for outside investments through angel investments or venture capital, companies that hold an initial coin offering are able to crowdfund a pool of money. Naval Ravikant talked about this in his article “The Bitcoin Model for Crowdfunding” altcoins can be crowdfunded into existence and achieve liquidity, going public on day one.
This has tons of implications for starting a business. Since ICO prices are largely determined by market demand instead of savvy and meticulous investors, there are a ton of sketchy altcoins popping up all over the place. Just because a company sounds good on paper doesn’t necessarily mean it is, and that’s why there are hundreds of subpar coins trading at high frequencies today.
On the bright side, companies that have an ICO are able to compensate the founding team with “pre-mined” or “early-mined” coins, which are like stock. These coins have the potential to significantly increase in value, and that serves as motivation to build out the product that is backed by the altcoin.
Profitable Mining
Patel: Will mining cryptocurrencies ever be a profitable venture?
Osinoff: While mining cryptocurrencies can certainly be profitable for some, it’s becoming much harder. It ultimately comes down to the investment in equipment and time you are willing to make. As more people enter the cryptocurrency-mining industry, it will only become more difficult to mine more coins.
Take Bitcoin, for example. Bitcoin mining was very profitable early on because the only miners were a small number of early enthusiasts. Today, a Bitcoin-mining venture looks more like a warehouse filled with high-powered machinery capable of extracting bitcoins at scale. Mining a bitcoin is still possible; it’s just much less likely due to the number of people trying to mine it as well.
Mining cryptos can get expensive, too. Unless you have the equipment or access to extremely cheap or free electricity, it will be difficult to come out enormously profitable. Altcoins such as Monero and the like provide an opportunity because they don’t have as many miners as Bitcoin, and could potentially be easier depending on their mining procedures.
I thought it interesting that Troy mentions Golem as one of his favorite cryptocurrencies in addition to Bitcoin and Ethereum.
The emphasis in bold/italic above are mine, but the full interview is worth checking out.