This is my first attempt at writing a weekly report about the cryptocurrency world. To start with, I will cover two major topics that have been much talked about for the last seven days.
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Is Bitcoin (IN) A Bubble Or NOT?
Since the Bitcoin price skyrocketed as of late, reaching new all-time highs, the bubble/not bubble debate stirred once again the financial and business world.
The ‘Oracle of Omaha’ Warren Buffett recently said in front of dozens of students that bitcoin “is a real bubble.” Moreover, one member of the Saudi royal family compared Bitcoin with Enron, a giant energy, commodities, and service company based in Texas who went from $101 billion claimed revenue and 20,000 employees to bankruptcy in a year, after a huge scandal involving institutionalized, systematic, and creatively planned accounting fraud.
Not to mention MasterCard CEO dismissing all non-government-based cryptocurrencies as being ‘junk.’
Obviously, many others rallied behind the number one digital currency. The most important names? How about Apple co-founder Steve Wozniak saying Bitcoin is better than Gold while the US Dollar is ‘kind of phony’?
Another worth-mentioning name is Peter Thiel, PayPal co-founder. Thiel said, in spite of the recent rally, that people, in fact, are ‘maybe underestimating bitcoin.’
Also, towards the end of the week, NASDAQ, the second largest stock exchange in the world by market capitalization (around $7 trillion), published on its website an article titled: “Five Reasons Why Bitcoin Is Not A Bubble.”
So, is Bitcoin (in) a bubble? Well, if you ask me, based on what I’ve read and witnessed as of late, community- and development-wise, I would be inclined to say… KIND OF!
Why do I say that? Well, let me first present you a video made by Chris Coney aka 
Coney presented the market bubble from a technical standpoint & in general terms and didn’t quite talk about why he actually considers Bitcoin is NOT in a bubble.
Nevertheless, I will use his analysis and talk about utility and speculative value in today’s cryptocurrency market.
First of all, I will talk about Initial Coin Offerings and why there is a real bubble bursting danger for the ICO market as a whole.
Recently, Bloomberg published a short article based on an ICO report. The report shows over 90% of the tokens created through an ICO don’t actually have a working product. The report takes into consideration all closed and successful ICOs by the way.
So, what does that mean? Well, somebody raised money using an ICO to help create/develop a better decentralized ecosystem. For that ecosystem to function properly, they created an incentive system aka tokens. So far, 90% of all those ICOs haven’t developed the promised ecosystem, thus the tokens haven’t been used once for what they were created for. Where is the utility value? This is the big problem: they have NO utility value, for the time being at least. So, the price for those tokens is solely based on pure speculative value!
The bigger picture: 202 ICOs have come and gone thus far in 2017 raising over $3 billion in the process! Just imagine at least half of the money raised by those 90% going down the drain… figuratively speaking of course. Or projects like Tezos or FileCoin who raised hundreds of millions eventually having a working mediocre product, NOT meeting the investors’ high expectations. What would happen?
Also, keep in mind that in the real world, over 80% of the startups FAIL miserably so it’s no wonder Ethereum founder recently said “90% of the ERC20 tokens are going to go to zero.”
Yes, the ICO craze is a big part of the cryptocurrency hype, so if the bubble bursts for ICOs, things could get really ugly for the market as a whole.
But what about Bitcoin? We’re talking about Bitcoin, right? Indeed, we were, yet the Bitcoin market WILL feel the effects of an ICO bubble burst.
Plus, there’s more in Bitcoin’s case. The utility value of Bitcoin is not so obvious anymore and is diminishing by the day in my opinion. What do I mean?
To start with, let’s just throw the anonymity utility out of the window. We all know this isn’t the case anymore. What about currency value? Well, if we are honest, most of us have Bitcoins to simply hold till we can get a lambo right? Very few of us are actually SPENDING Bitcoins and use it as a medium of exchange.
The fees are not that low anymore, even with Segwit activated, and the processing times are not trivial anymore – a transaction can take quite a long time if you don’t incentivize the miners properly.
There is constant war happening within the community AND amongst the developers. Many already confuse hard forking with creating new blockchains and cryptocurrencies which is a very bad thing. You can’t just make money out of thin air.
The only real utility value Bitcoin has at the moment is storing wealth. Because the blockchain is unhackable, limited in supply, and harder and harder to get as time passes by, Bitcoin could be the digital gold. PayPal co-founder said one doesn’t need to use Bitcoins to make payments. Bitcoin is like reserve form of money.
Currency though? Not so much. Wall Street’s ‘dean of valuation’ Aswath Damodaran said that ONLY if Bitcoin is used as a means of payment, he’s “OK with the price.”
“A good currency is not something you boast about how much money you made. A good currency is something you use to transact. Right now, all the discussion of cryptocurrencies seems to be about how much money you can make betting on the currency, not about how good a currency it is.” - Aswath Damodaran
What do you think? Is Damodaran right? Or do you agree with Thiel? Is Bitcoin and the cryptocurrency market in a bubble or not?
The Tezos Project In Disarray
The second major topic has to do with a much-talked-about ICO that raised $232 million in July. Given today’s Bitcoin and Ether price, the funds are actually worth over $400 million.
Over a week ago, Reuters and some other major news sites revealed the power struggle happening behind the scenes at Tezos. To make it short, Tezos developers Kathleen and Arthur Breitman are in an open war with one Tezos Foundation president, Johann Gevers about who controls what in the project.
Already, two US law firms are investigating the case. If Tezos fails to deliver, the investors may press charges against them, and the Breitmans may face a lawsuit.
CoinTelegraph (and CryptoHQ for that matter) raised a few interesting questions pointing to a blog post that accused the Breitmans and the Venture Capital firms of hidden agendas. Basically, the blog post stated venture capitalists like Tim Draper bought in the project at a discount before the hyped ICO with the intention of cashing out big after the ICO.
Draper reacted immediately and said: “I am a true believer in the Tezos mission.”
Shortly after, at Money 20/20 event in Las Vegas, the Breitmans tried to calm the investors down and explained “The development is moving forward.”
Unfortunately for investors (the author of this report included), the future is uncertain. The launch of the Tezos blockchain has been postponed (February 2018 is an optimistic assumption, indefinitely or ‘when it is ready’ seems much more realistic) and all investors now have to play the waiting game. For how long and to what purpose, we don’t know…
Tezos is just an example of what ICOs have brought to the table in 2017. And in what danger the cryptocurrency market is IF such big project fails to deliver.
The moral of the story? Be very careful when you invest in this market! Do you research, listen to all opinions on both sides, of why you should and why you should not invest in a particular ICO. And if you ask me, avoid investing in over-hyped projects that raise tens if not hundreds of millions of dollars. Why?
Just think about it: how much money does a development team REALLY needs to develop a project? $100 million? Let’s be serious! $10 million? Not that likely in my opinion. An average blockchain project would realistically need hundreds of thousands of dollars or maybe several million at most if the project is top-notch and plans an extensive marketing exposure? But $200 million? NO WAY! It’s WAAAAAY too much for any kind of blockchain project. PERIOD!
Have you invested in the Tezos ICO? Or maybe in some other big project that raised way too much money? How do you feel about your investment now?
Make sure you join the discussion by leaving a comment below on both topics.
Until next week, take care and invest wisely.