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Mass Extinction Before Mass Adoption

Before there is a mass adoption of an asset class or industry, it will have an extinction-level event. The thought of extinction doesn’t lend itself as being a "happily ever after" event. Instead, it rings the gloom and doom bell. Nevertheless, the type of extinction I am talking about is actually healthy for the crypto industry as a whole. Now granted, we will witness...and perhaps for a period, experience...a great pain. It is my humble opinion that we are in store for this event to play out.

What exactly would this event look like and how would it be played out? For starters, the dot-com bubble gives us a great indication of what is to come. During the dot-com bubble, we saw a lot of internet-based companies rise in value between 1997-2000. It was during this period of time that we saw many companies being born which were purely taking advantage of the speculative nature of the market. Essentially, many companies had no real working products or services -- just a bunch of hype and speculation. This eventually caused the market to correct, in the tune of $5 trillion being wiped out.

Investing into something that is popular doesn’t mean it’s worth your money!

The hype ran out, many didn’t have real cash flow, and the market finally realized that most of these stocks weren’t sound businesses. The bubble burst. Now we are in another bubble with the crypto market. Will we have the same fate? Only time will tell.

Regulation! Regulation! Regulation! Yep, that is right! Regulation will be the driving force that will lead to a mass extinction level. Nevertheless, this is actually great for the crypto space. Reason number one: it gets rid of the junk coins, or as some have dubbed, “shit coins.” Many crypto projects are very speculative and solve no real fundamental problems, nor add true value to the ecosystem. There are now over 10,000 crypto projects and a vast majority are trash.

The dot-com bubble thrived off promises that sounded great. Crypto is displaying the same effect. We automatically assume that because a traditional legacy company partners with a crypto-based company, or because it comes up with a radical new way of solving a problem, that it means it is an automatic cash cow. Not so fast. Online pet stores sounded like an easy investment because they were doing well with their brick-and-mortar stores. Investing in the online version seemed like an easy move. That idea did not pan out very well.

In 1999, the height of the dot-com craze, there were 457 IPOs. Most were Internet and technology stocks. Of those, 117 doubled in price on the first day of trading. Tech and dot-com IPOs were minting new millionaires every day, both at the management level and retail investor level. For most though, it was all on paper. (O’Malley, Chris. Bonds Without Borders: A History of the Eurobond Market. Wiley, 2015.)

Still, the fear of missing out sent the Nasdaq to an all-time high of 5132.52 on March 10, 2000. Then, with no warning, stocks started to sell off. By October 9, 2002, the NASDAQ had lost 78% of its value.

What happened? No one knows why the sell-off started on March 11, 2000. What we do know is that investors suddenly realized that a tech and/or Internet company with a billion-dollar valuation that had no revenue or earnings was saddled with debt and had no future. It was worthless.

In crypto, there will come a day when investors of shitty projects realize they are investing in a greater fools game. Regulation will help weed out some bad actors; however, bad actors know how to set up companies and market them the right way, while also manipulating investors. There is a reason Bernie Madoff was able to scam so many.

Once we get regulatory compliance in the crypto space, you will start seeing a lot of projects die off. However, we will also see crypto projects become household names and will take the world by storm. The question we must always ask ourselves is this: Does the project I'm investing in have a true proof of concept and working project? If the answer is no, then tread extremely lightly. If it is yes, still tread lightly, but with a little more optimism.

The minute investors believe that what they are investing in is a sure bet is the minute the market has entered irrationality. This article was not written to scare you. It was written to open your eyes and look at the bigger picture. Which projects are building proper infrastructures, aiming for compliance, working with governments, and delivering on what they said they would do?

May the Horse be with you!


Author: Eric White

Editor: Shamya White

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Jun 16, 2021

Fascinating stuff!

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