Crypto and the Gartner-hype-cycle…
Short and sweet from me on this one.
But first, I’m no blockchain expert. Nor am I a super early cryptocurrency investor, sat on a sizey virtual wallet of Bitcoin. Merely here to make a few observations on a topic that everyone seems to have an opinion on…
So, 2017 was the year of crypto. Nothing revolutionary about that statement. 2017 for cryptocurrencies was like 1999 was for the dot-com stocks…. both of which were built on revolutionary and game changing core technologies — the blockchain and the internet respectively.
However, you can probably see where I’m taking this one… if history is to repeat itself, the world of crypto might just come crashing down. And very soon too.
I’ve written in the past about how timing is the most important factor in start-up and investor success, well the power of timing is largely down to the development of the core underlying technology and in this very case, blockchain and cryptocurrencies. The Gartner Hype Cycle can tell us more…
So how have we got here?
Everyone loves a bit of hype. I even had a t-shirt with “hype” right across the front of it once (*Emoji eyes*). Hype makes you feel, well, hyped! However, hype is often irrational. In the case of crypto that’s where we are right now, even after a couple of “price correction” blips over the last month, the market is still pretty hyped at c.$700bn market cap.
The “Technology Trigger” and the rise of Bitcoin led to serious wealth accumulation amongst the early adopters. These adopters who became filthy rich in Bitcoin then helped fuel the second wave of hype through alt coins, ICO’s et al. The media then jumped in on the action to add some fuel to the hype fire pit. This then attracted secondary investors looking to get in on the action, from big institutional investors to your taxi driver, your barber, Jack and Jill from up the hill and everyone else in between, all of which pushed up prices even more. The more hype the greater the price. A direct correlation between hype and price (or is it a causation?…). Either way the “Peak of Inflated Expectations” feels pretty real right now.
But blockchain will change the world, I hear you say? Chill. I’m long blockchain too.
There are two ways to approach the “Peak of Inflated Expectations”
- People question, is this really an all time high hype level or are we still on that climb to the peak?
- Or to the contrary, is crypto here and at these prices, for the long-haul i.e. there will be no drop into the deep, dark dot-com-abyss of 2000.
In response to 1), I believe we could be nearing at the summit. Prices peaked in Dec-17 and although we have seen 30% falls in one day on two occasions, the volatile nature of cryptocurrencies just means this was a bad day and doesn’t equate this to a dot-com style crash. Those fellas crashed by 70–90%. There is still capital pouring into cryptocurrencies in various formats but it appears to be slowing.
And in response to 2), I’m long the underlying core technology. Blockchain has the power to change the world we live in for the better across multiple sectors and use cases — from the decentralised ledger to the power of cryptography. From banking to professional services (accounting and law), to the real estate sector, to the entertainment industry and to our healthcare. Our world will change for the better. Blockchain may have great technological long-term impacts, but questions need to be asked about cryptocurrencies as a short-term investment and a store of wealth.
The same was true for the internet and e-commerce. No one argued the internet wasn’t powerful but they got hyped on the stocks that that represented. We saw investors ploughing into loss making dot-com stocks; similar to the ICOs of today, they yielded absolutely nothing. If history is to repeat itself, which it pretty much always does, then there has to be a “Trough of disillusionment” waiting beyond this current hype.
The real question now is — when will this Trough be and will anything come out of the other side?
Some say the only cryptocurrencies to survive will be Bitcoin and Ethereum, others suggest a slightly wider audience where the use case or technology is unique — Ripple in it’s use for in banking and Litecoin for it’s speed of execution.
For what it’s worth, I don’t know which ones will survive and hazard to make any guesses. What I do know, whilst the majority of businesses didn’t make it through the dot-com crash with many investors making hefty losses, some businesses did and many are still around today — Priceline, Amazon, Oracle, Ebay and IMB to name a handful. However, it has taken them over a decade to reach these dot-com share prices again…
Conclusion
Blockchain will change the world. However, if history is to repeat itself, cryptocurrencies are hyped and will trough soon enough.
As an investor…
If you’re already in, I’ll leave that decision up to you…
And if you’re out, well I’d stay out, at least until that “Slope of Enlightenment” shows it’s face. Unless you’re going to short it…
*Caveat — I did invest a little in crypto and made a few paper gains along the way, I say paper because that’s all it is, at least until my landlord starts accepting Ethereum or the Apple store starts accepting Bitcoin… in other words it’s all tied up, there are limited to no opportunities to use it in the mass market, so it is purely an investment and not currency, it is therefore at serious risk.
