It’s Time to Start Predicting the Future of Cryptocurrencies.

https://gurubitcoin.tk/

Yes, they may be Anti-fragile but we have seen this before. Smart money plans for the dips.

It’s an old story … Boy meets blockchain, boy is infatuated, imagines the possibilities. Boy falls in love. Boy loses all perspective. And then, one day, blockchain brings a bunch of friends over. Many of the friends are unlikeable and irresponsible — boy begins to see the flaws he overlooked before …

Many of us who started our infatuation with blockchain months or years ago, did so because we genuinely appreciated the myriad new applications these protocols enable.

Now, we stand surrounded by shaky initial coin offerings making wild promises and arbitrary price swings in crypto-currencies. We recognize our beloved blockchain, our decentralized vision of tomorrow, has some hard lessons of growing up ahead before the beautiful potential we first saw can blossom.

Crypto and blockchain are still in the imagination phase

Nearly every token sale white paper has as a key theme, “the old way of (fill in industry to be disrupted) is centralized and inefficient, we envision a future where it is decentralized and awesome.” Ok, sure, imagining is easy. In 1998, pretty much everyone who looked at the still-forming commercial Internet could imagine that it would one day revolutionize shopping.

So it’s worth noting that in 2016, online retail represented just under 12% of all retail sales. 12%. That’s a lot by some measures — but getting to 12% took 20 years. The next 20 years will, of course, bring much faster change, but the first meaningful shift to a fundamentally new way of doing something usually takes some time.

There is a big leap from imagining to implementing the changes of a new enabling technology. And in between the imagining and the implementing are some harrowing ups and downs.

Rewind: We’ve seen this movie before.

As an entrepreneur and coder in the heady years of the 90’s computer industry expansion, I had a front row seat to the birth of the commercial Internet — and it made for very good business for me and millions of others.

The parallels of today’s Token/ICO craze with the dotcom IPO frenzy are instructive.

In the 90s, hard as this may be to believe, companies were raising tens of millions of dollars based almost solely on the fact that they had procured some household word as a domain name. Pets.com is a famous example. In general, dotcom business plans shaped up something like this:

1. The Internet will be huge and http will change how we do nearly everything (no argument).
2. There are only a limited number of simple words that elegantly tie a .com address to a big market.
3. Therefore, it is essential to be first in a given space.
4. Being first and staking out an Internet claim with a great domain in a big market is the key ingredient to success. The details will just fill in around it.

Hence, Pets.com (there are plenty more examples) went from $82 Million IPO to liquidation in 268 days.

Bubbles grow because we love rush of the bubble more than we fear the crash. Until it starts to crash.

During the dotcom boom, the gatekeepers got greedy. Venture capitalists, investment bankers, even securities analysts who were supposed to point out the holes in business plans simply went along for the ride. Investors were not complaining, they were getting richer by the day.

We loved the Internet from day one. We understood from the outset just how big it could be. Yet WE let greed get out of control, WE touted and bought shares in junky companies we knew didn’t have sound plans. And WE paid the price in the form of knee-jerk reaction by markets and regulators after the fall.

Had the Internet world itself done a better job of calling bullshit on garbage IPOs would it have been possible to avoid a crash and subsequent government over-regulation? No way to say.

I do know for sure that when lots of people (read: voters) lost money in what amounted to scams, law-makers did what law-makers do. As a result, IPO is now a liquidity option for far fewer companies, because SarbOx added so much cost and risk.

Frivolous IPOs wrecked the IPO market. Where I come from we call it pissing in the pool.

Lather, rinse, repeat.

The very same thing will play out in the cryptocurrency, and utility token ICO markets, as we watch more and more frivolous token sales emerge with no anchor in a disciplined business plan and no accountability for founders.

A land-grab market is never a good one. It invites speculation and encourages manipulation. Can I really argue that if I create the very first Ethereum token for some application that no one will ever come along with anything better? That’s how valuation of IPOs in the dotcom era got out of control and the exact same thing is happening with ICOs, only worse.

Do we really think governments will not weigh in with regulation? At worst, governments could render whole swaths of the technology illegal or impose regulations and tariffs. At best announcing plans for formal regulation. Either action will almost certainly cause a mass run for the exit.

Those of us who believe that blockchain will change the world (and many of us feel we know it will) have a duty to also understand where it is in danger of running onto the rocks. The cryptocurrencies and utility tokens are linked, both are being valued by speculators and both have charlatans in their ranks.

ICOs decouple founder risk from reward — which is bound to end badly.

The long proven financing course for a new technology goes something like this:

1. Founders work without pay to take their idea as far as they can without money from others. This is how they earn founder shares.
2. Then, armed with this early work and a plan, they determine how much funding they may need to scale and solicit private investors.
3. If the business moves along, grows and the plan is robust enough to support a public company, founders, investors and advisors develop a plan to offer shares to the public via IPO.

All along this path is a common theme — founders have skin-in-the-game and suffer dilution in their interests if their plan performs poorly. The consequences of fraud are severe, so (hopefully) everyone is careful not to overpromise.

None of this is true with an ICO. There is no risk of dilution for the founders, no risk in over-promising and no regulatory or legal consequences of making claims which founders know are completely unsubstantiated.

The ICO skips all the discipline and accountability of professional investment and IPO preparation. Taking money from others with no accountability is never good.

ICO token sales usually gloss over the most difficult part of any business plan: How, exactly, they will make profits.

Most ICO white papers I’ve read seem to take the “… And then a miracle occurs…,” philosophy of business development. The general theme is that decentralized is just better, people will just use it.

C’mon man. Nothing works that way. Getting markets to change is hard and it takes time and never goes as planned.

For example, a blockchain system can enable a solar panel to offer its energy for sale to the highest bidder through a smart contract. Absolutely, there are details of course but it’s a perfectly acceptable use case. Very cool. But does functionality solve a pressing problem?

Startup culture coined the term “solutionism” as shorthand for the old saw, “It’s a solution in search of a problem.” The fact that there’s now a word for it says something about how common it is with startups. In the ICO/Token/Blockchain/Crypto world solutionism marks the premise of most, if not all business plans.

Every token sale presents a white paper describing a new way to do something people already do. Since they all need to sell their token to fund development, they inevitably must present a vision of how the world will be when their new token is in use.

Traditional business plans aimed at equity investors, must show how the market is demanding the new solution. Token ICOs use their white paper as a sort of fairy tale to describe a bold new vision for how the world will work in the future. In such an abstracted story line, the offered solution isn’t tested against demand, competitive alternatives, economics. Not tested at all. It is merely offered as a bold future vision — with a heavy dose of FOMO — to create believers and drive token sales.

ICO white papers can make any number of ridiculous claims and no one calls them on it.

Blockchain is complicated. There is no getting around the fact that understanding how these networks operate and what they can do requires digging into the details and the details are difficult to grasp. That’s no excuse for letting token projects get away with jargon-filled descriptions of technology and no clear, concise value proposition that a non-crypto-savvy investor can understand.

Any seasoned venture capitalist will tell you; if you can’t tell the story in simple terms, it probably isn’t that great a story.

How proud are we of the crypto network of today? How does it need to mature to support global, mission critical services?

Bitcoin and Ether are mined almost entirely by opportunistic and hastily built data centers located primarily in China, Russia and Eastern Europe. And remember: The miners are the network. These data centers look nothing like the data centers of network infrastructure companies we’ve come to rely upon. By any measure of a serious, long-term business these data centers are a sham and a joke. Temporary shacks setup to harvest profits from speculators chasing quick profits on the greater fool theory.

Take a hard look and ask yourself if the cryptocurrency mining centers running today’s networks are likely to stay well maintained, disaster-proof, and up-to-date over the next several years or decades, especially if the reward for mining levels out or declines.

All this adds up to the fact that markets will have to crash and emerge with some useful measure of value so losers can be weeded out, and good ones survive.

But someone said cryptocurrencies are Antifragile?

Maybe so, hardly matters.

I love and recommend the thinking of Nicholas Nassim Taleb. I share his distrust of institutions (perhaps why I’ve always chosen to work as an entrepreneur). His concept of anti-fragility teaches well how to think about how different systems react to stress, instability & chaos.

Some argue that bitcoin in particular or cryptocurrencies in general possess characteristics Taleb associates with his anti fragility — an idea that when stressed something not only does not break, it actually gets stronger. Get it? Not merely “not fragile” (doesn’t get weaker or break when stressed) but “anti fragile” (actually gets stronger).

Two of Taleb’s examples are airplanes (get better every time one crashes) and restaurants (same kind of thing). I won’t argue — much about cryptocurrencies suggests they will get stronger in response to certain stresses.

But systems that are anti fragile with respect to chaos and stress, do not always react well to structure and regulation. If you don’t believe me, ask someone who flew on an airplane or ate in a restaurant in a Soviet era Eastern Bloc country.

So — with all that dotcom experience, can we predict the future of cryptocurrency markets?

Well, yes actually.

Firstly, we know that at a minimum — outlandish cryptocurrency valuations aside — many (most?) utility token/ICO projects are overhyped and will never amount to much. Governments regulate capital markets and pay attention when their constituents scream. One way or another, governments will have to start intervening in token sales and when they do they will almost certainly also build a regulatory framework to address cryptocurrencies.

This is sure to happen, even if the “currency” part of cryptocurrency doesn’t spur financial regulation sooner, which of course, it very well may.

Either way, we can never assume we’ve passed a milestone in the crypto-bubble until cryptocurrencies have experienced the “steadying” hand of government.

The reason being that the market is chaotic and will cause loss and disruption and governments are programmed to react.

Once governments show their hand, we can start to understand the value of cryptocurrencies and public blockchain networks.

Governments are sovereign over the means of trade within their borders. Even if it were practical to evade getting caught (something I doubt), how many people would really still use bitcoin if their government made it a crime?

It is common wisdom that only “after the crash” will be begin to see which cryptocurrencies and tokens have value. Perhaps. I would add, and also only after governments make clear their intentions. Either may cause the other, but until government weighs in, we really don’t know what we’ve got here.

Smart money plays a long game. Take some gains now to reinvest later.

At the start of this story I noted how I, and many others, truly believe that public blockchains will — eventually — bring fundamental change to many major systems. But — while the Internet may have fringes that slip outside government control — it has not many and not too far out. This will also be true of public blockchains.

If you are lucky enough to have had money in cryptocurrencies for 10, 12, 24+ months and are wondering when to sell, seriously consider this:

Take your profit, then set some gains aside for reinvestment in the event of — and only in the event of — a 90% crash. Oh, I know, you don’t want to miss out as bitcoin soars past $50,000, $100,000 or whatever. Fine, don’t. Leave some in. But take real gains — and put them aside so you can be the person who bought Amazon.com in May of 2000.

In every bubble, there are a few wise investors who salt away some profits in the halcyon days to buy with a smile the day after it pops. Those investors are patient. They don’t try to time the upside. Rather, they know the crash will come, and money they take out on the way up — even if they take it out only halfway up the hill — will buy far more, and of things with much clearer long term value at some point down the road.

#News - https://gurubitcoin.tk/2017/12/its-time-to-start-predicting-the-future-of-cryptocurrencies