Bull markets are fun, aren’t they?
They keep you entertained and, of course, if you’re not late to the party, you can make some nice money.
You’re waiting for a “but”? OK, here it is…
But at some point they end. And then you have to deal with the aftermath.
And there’s always an aftermath – a time when markets can no longer support escalating prices and implode.
It’s never pretty. It reminds me of going into our kitchen the morning after my wife and I host a dinner party.
Bull markets lift all boats. Caution is thrown to the wind. As Warren Buffett put it, you only find out who is swimming naked when the tide goes out.
A lot of ICOs (initial coin offerings) took advantage of uneducated investors last year. A tsunami of crap was unleashed on unsuspecting investors. And the market kept on going up… until it didn’t.
For a while, investments in mediocre to scammy/trashy ICO companies were making investors money… until they stopped.
This is how it is. Bull markets carry the seeds of their own demise. We were at an extremely early stage of crypto’s evolution…
The quality simply wasn’t there.
But there was more to it than that.
My co-founder Adam and I knew what was going on. And I don’t say that as a boast. To tell you the truth, most crypto insiders knew that the vast majority of coin offerings weren’t worth the white papers they were printed on.
The only thing that made us different is that we decided to do something about it. We created a crypto investment service – called Crypto Asset Strategies – where we kicked 99% of ICOs and small coins trading on the exchanges to the curb. We recommended just a handful of small altcoins that we felt were deserving to Crypto Asset Strategies members.
And we got a lot of grief for it. Many of our members wrote to us along the lines of, “Everything is going up. Why don’t you recommend more ICOs, more altcoins, more crypto opportunities?”
We constantly reminded our members that there was a lot of crap out there, and anybody who invested in that was going to end up with nothing in the long run (or short run). But greed trumped caution and common sense… even among our members (who were more educated than most crypto investors).
So now we’re dealing with the aftermath.
The market is down well over 50% for most coins, regardless of size or quality. That stinks. Serious investors who have shown discrimination and discipline aren’t being rewarded right now.
Here are some of my thoughts on that and the aftermath we are now dealing with.
- The crappy ICOs won’t bounce back. But the quality ICOs, or at least most of them, will have a great shot at bouncing back. They all have work to do. It’s really early. Discriminating investors may not be seeing profits right now, but they will be.
- The shaking out has just begun. Unfortunately, it’s going to be a painful, drawn-out process. When you raise a lot of money – which many coins did last year – you can freeload off your inheritance for an extended period. I heard a great phrase at the Crypto Invest Summit I went to last week in Los Angeles: “Shit ICOs need to die.” Yes, they do.
- Investing in cryptos will remain challenging. Adam and I are seeing a lot of mediocre deals in startup land… and it’s been five years since our startup investing service launched and six years since the Jobs Act was passed. It’s the nature of the beast. Founders, whether they raise via equity crowdfunding, tokens or something else, always think they’ve found gold. (A few are scammers, but the vast majority deeply believe in their big ideas/new products.) It’s our job to figure out if these are fool’s gold or the real deal. The crappy ICOs aren’t going to disappear. But the good news is neither will the quality ICOs announcing new raises (which we’re constantly on the lookout for).
- You should beware of useless, fast-talking investors. The crappy investors aren’t disappearing either. I’ve always known there are a lot of people out there talking nonsense. But from what I heard at the Los Angeles conference, the problem could be more serious than I thought. Andy Bromberg, the co-founder and president of CoinList (a platform for running compliant token sales), said investors who jumped on the altcoin bandwagon last year and made a lot of money without too much effort or knowledge are now touting their so-called track record and expertise to unsuspecting investors. The problem is front-running coins on the rise won’t work anymore. Be careful out there.
- This is a long game. So don’t confuse liquidity with profits. Coins are liquid. But just because you can sell/trade them right away doesn’t mean you should. It’s still early. Companies still need loads of time to build self-sustaining businesses. Discriminating investors will get rewarded in the long run. We’ve said it time and again: This is how early investing works.
What the crypto community needs right now are serious coders/builders and smart investors. And that’s exactly what it’s getting.
Both groups will play critical roles in helping crypto evolve and improve.
At some point, prices will follow. But that’s not the focus right now. The crypto infrastructure needs to be built out. Investing and analytical tools need to be coded. ICO founders need to hunker down and work on making the leap from proof of concept to proven technology.
And smart investors need to direct their capital to the best people participating in the most promising projects.
The noise is dying down. The hard work is picking up. This is how it should be.
Co-Founder, Early Investing