Even after the pull back from all time highs in late 2017, the cryptocurrency space is still red hot. New projects are launching every day, and with them, their own cryptocurrencies, or tokens. CoinMarketCap, the definitive token tracking website, lists over 1600 separate cryptocurrencies, though other sites list as many as 5,500. While many may be nothing more than a copy-paste of open source code, there are certainly hundreds of established crypto projects out there.
There is also no shortage of different speculative opportunities, and by extension, exit scams created with the sole goal of ripping off would-be investors. Even projects with tremendous potential fall apart, and millions in investments vanish into thin air. The market has become a veritable minefield of crypto ready to implode at any moment.
The space has become so diluted that even struggling mega-corporations are looking to get in on the craze. From Kodak to Atari, it seems like there is no slowing the “tokenization of everything.”
Why? It’s a big business and there is a lot of money on the line. There are even entire sub-markets built on advertising, advising, and rating new projects, with millions trading hands every single day.
Last year alone, ICOs raised over $5.5 billion, adding fuel to the fire. It’s obvious why an ambitious startup would launch a cryptocurrency – it allows companies the opportunity to fund their project in a new way, free from venture capital oversight and investor scrutiny. But it’s not always sunshine and rainbows. An excellent presentation on the extensive pitfalls of the ICO market was done by Giaccomo Zucco last year and can be viewed here.
In 2017, nearly half of all ICOs failed, with many not even making it through the initial offering. Additionally, when the crypto-market plummeted at the end of the year, many projects were forced into new campaigns to generate additional funds just to survive.
Despite this, however, startups and corporations alike are still rolling the dice, risking capital and reputation to get a piece of the pie.
How Much is Too Much?
Though cryptocurrencies are often compared to fiat currencies, the likeness falls apart almost immediately.
The term cryptocurrency includes both digital currencies and tokens, which can represent a utility or a particular asset. While some coins such as Bitcoin or Monero do represent a direct challenge to the world’s traditional fiat currencies, tokens are in a league of their own.
Tokens are both a means to allow consumers the ability to interact with a new technological ecosystem and a means of generating operational capital for companies with high upfront costs. For these reasons, the SEC and regulators worldwide have had a lot of trouble constructing appropriate ground rules that cover the space fairly.
The latest from the SEC shows a clearer outline of regulations, even offering investor advice and entrepreneur assistance. “If you have an ICO or a stock, and you want to sell it in a private placement, follow the private placement rules,” SEC head Jay Clayton explained. “If you want to do any IPO with a token, come see us.”
Though token holdings do not represent a stake in a company as typical stocks might, the comparison between the two is significantly closer than the comparison between crypto and fiat currencies. Both offer investors the opportunity to speculate on the future value of the company, and both deal in assets that have no real value outside of their given ecosystems.
There are over 60 major stock exchanges in the world, representing over 650,000 companies and $69 trillion in total value. When you put this into perspective, the number of cryptocurrencies doesn’t seem that significant.
Source: Visual Capitalist
A further comparison can be made in how companies use stocks or cryptocurrencies after the initial offering. In the stock market, for example, companies that need to raise funds can issue new shares or even promote and sell off current shares, potentially buying them back at a later date. Companies holding crypto can do the same, setting aside a pool of tokens to tap into a later date if more capital is needed.
So where does crypto go from here? Many suggest that the issuance of new coins detracts from stronger coins, and they may be right. But the market is still finding its footing. It’s possible that many of these projects will die off and another asset class built on a single blockchain, utilizing a single coin will emerge, but as long as there is money (and a lot of it) being made, the “tokenization of everything” is, for now, here to stay.
Ultimately, however, it is a free market – and a young market. Only the strong and the lucky will make it out alive.