Written by Dr. Adam Weigold, CEO of Cryptyk Inc.
The Bi-polar crypto market
The last few years in the crypto industry represent a crazy period for digital assets that are now coming to a justifiable and necessary end. This will signal an end to the unpredictable bi-polar behavior of crypto-currency markets with unjustifiable valuations and sometimes overly harsh criticisms. This period also marks the end of the era of the utility token. While the utility token is the most powerful (and potentially profitable) class of digital assets, the vast majority will soon become a thing of the past. Too much hype and not enough substance is now being replaced by too much regulation and not enough potential disruption. It is a natural sign of maturity for any technology driven market….. but it is also a time for educated investors and professional projects focused on truly disruptive solutions to shine.
This time last year was the peak of the famous ICO boom. The market exploded with a plethora of offerings claiming to be utility tokens raising huge amounts of capital for any crazy idea that could be dreamt up. We have seen anything from cute animal memes with no real use case (eg: Doge Coin) to blockchain based porn networks where users profit from their own kinky fantasies (eg: Stroken Token). Investors were lining up to buy into any half-baked ICO idea simply because of FOMO (fear of missing out). If it was crypto it was sexy and everyone wanted in. Most of these projects provided almost no technical, financial, market or governance information for investors. A ten page white paper that took a few weeks to write could easily raise $10M in just a few days. This low barrier to entry led to a predictable outcome: the vast majority of ICO’s launched in late 2017 were simply scams, jokes or very bad ideas ….. and they misled investors because they had no real utility or even a need to use blockchain technology.
How Investors React to Scams
As a result most retail investors started to distrust the crypto world, and since those heady days the ICO market has been in a constant free-fall. The majority of tokens listed in late 2017 have either lost most of their value or completely disappeared from exchanges because of a lack of liquidity. For new projects launched during 2018 the market situation became even more dire and confusing. The industry appeared to change shape and structure every 2–3 months and it became apparent no-one really knew what was going on. Entrepreneurs and investors were consistently having to adjust their strategies, tactics and expectations simply to survive the market’s annus horribilus. Public sales to expand a retail user base have now largely disappeared for the smaller scale projects. Investor due diligence has gone from 2–3 days to 2–3 months. And lately tokens swaps between ICOs that may not even list have exacerbated the zero-sum nature of this new market climate. Simply put, the last year in crypto has been a story of survival not success.
Who is Actually Making Money?
The only people who seemed to make any money were the thousands of marketing promoters, Youtube influencers and social media spammers who could keep increasing prices for promotional services in step with the increasing desperation shown by the projects. If they introduced you to an investor that actually invested (after months of due dilligence), the promoters then charged you 10–20% just for the simple task of sending an introductory email. It became very common for projects to spend almost all of their raised capital on futile marketing strategies in the vain hope of raising larger amounts of money in the future. As soon as projects raised even a little money they started to plough it straight back into the ever expanding number of crypto-experts, industry conferences and marketing pitch fests that seemed to appear out of nowhere. ICOs were feeding a hungry marketing beast that got ever hungrier with no respite. The middle men got fat and most projects had insufficient funding left to spend on actually developing their product (ie: the actual purpose of their ICO). This obviously flawed strategy resulted in over 90% of ICO’s launched in 2018 disappearing before they could start building a real product.
Was there anything good to come from 2018?
However, many good things happened to crypto during 2018 and there is a positive future ahead. If 2014–2017 was the industry’s period of early childhood, 2018 marked its transition into adolescence. And as every teenager can attest, adolescence is often a very depressing, confusing and challenging time …. not only for themselves but for their families as well. Despite this highly challenging period for the crypto industry, it has been an essential and necessary step for its long term maturity and growth.
The first positive thing to come out of 2018 was the quality of the projects that did manage to survive. Dramatically increased investor scrutiny and due diligence requirements meant that you couldn’t raise money without a solid idea that was thoroughly researched, tested and validated. Gone are the days of raising money with a simple white paper containing little detail or analysis. ICO projects now required many months of research and design, a large range of supporting documents for investors, an experienced credible team, and proof of a real world use case with a prototype platform or even an already launched product with customers. The time for amateurs had passed and only quality ideas managed by experienced professionals had any chance of raising money … and even then it was bloody hard work. The time spent closing a successful ICO went from just a few weeks to an average of 6 months or more. The ones that survived did so only due to a truly smart unique idea, a professional team and a massive amount of hard work and persistence. And most importantly these successful ideas had to have real utility that utilized blockchain technology as an essential ingredient of their final product.
The second positive thing that came out of 2018 was in the quality of the major investors who started to enter the market. The crypto investor market had traditionally been dominated by shady crypto funds largely based out of China and run by a bunch of millennials with no real financial expertise. They had never been through a sustained bear market or been involved in a financial services business for more than a few years. They had got lucky with their initial timing, but you can’t rely on timing alone. Now the professional investment players have entered the market and the year-long fall in crypto prices has been a direct result of this transition. Experienced financial investors from major banks, venture capitalists and hedge funds have now got interested in blockchain, and have been playing with crypto prices all year. As soon as the market crashed in February the major banking players have been slowly and steadily forcing down all crypto prices with huge short contracts on all the major currencies. The more crypto prices fell the more they stood to profit …. and the more they shorted again and again. The plan was to incur major losses and panic on the young Asian crypto funds. It was also to force the price of bitcoin and ethereum down to a level that they considered attractive for major investment. Perhaps we have now reached that point in the last week or so given the recent small rebound in prices. There now appears to be enough blood in the water for the major banks and traditional funds to start buying long on crypto. And by no small coincidence this initial rebound also coincides with a dramatic fall in traditional stock market prices (and just before the end of the financial year too).
Regardless of whether the market rebounds now or over the next few months, everyone knows it is coming soon. As with all historical rebounds in crypto, it will not be characterized by a huge sudden increase in prices that could offer the biggest losers hope of an acceptable exit. It will be characterized by a sustained gradual increase in prices over the entirety of 2019. I expect that by this time next year crypto-currency pricing will better reflect their true value. BTC should finally return to the $7–8k level and ETH should return to the $400–500 level most metrics indicate as their real worth. The next few months will surely signal the bottom of the overall bear market, and also the transition of market control from the amateur investor to professional investor.
So now to the initial point of this article.
Why will 2019 also mark the end of the utility token?
Firstly, the reader should appreciate that genuine utility tokens still have massive potential for large multipliers for investor returns (unlike the more recent emergence of security tokens). If a security token has potential for a 5–10x return over several years then a utility token has potential for 50–100x return over that same period of time. This is because the value of a true utility token is directly tied to the success of the product and use by customers (as opposed to investors). Increased customer adoption directly drives increased token price. The viral network effect of token utility means the more customers using the tokenized product the more real demand for the token, irrespective of market sentiment or investor manipulation. Consequently, utility token prices can often grow exponentially with customer adoption as with bitcoin during its infancy. So why would this form of digital currency be under threat when the potential for growth is many times that of security tokens? Why will utility tokens disappear from the investor landscape if there is so much potential for huge investor returns?
Here are the major points to support the argument that utility tokens will largely disappear in 2019:
(1) Market Perception — most investors are like sheep and tend to follow industry trends and market perceptions. The majority of investors are not contrarians who go against the prevailing tide of sentiment. Right now most utility tokens seem like poison to the average retail investor because that is what all the so-called experts are telling them. Chatter and gossip grows exponentially and it’s hard for most people (even professionals) to ignore the crowd. The industry is telling that security tokens are a much better investment, despite the fact that potential ROI’s are modest and there is no network effect on price from customer adoption. In truth security tokens are just a re-hashed version of a penny stock where price is determined entirely by investor sentiment and not the level of customer adoption or product success.
(2) Limited Use Cases — there are only a very limited number of practical use cases for any new technology. There are only ever so many killer apps possible. There are literally thousands of tokens now listed on exchanges that claim to have utility. However most have either negligible practical use or too small an addressable market to grow into anything significant. Ultimately there may be as little as 40–50 real life use cases for utility tokens with significant market potential to survive and prosper. As a result most utility tokens will either disappear over the next year because their product has failed, or be swallowed up by larger players with more funding or a larger customer base.
(3) Market Consolidation — given the argument detailed in (2) the utility token industry is primed for massive consolidation in 2019 and beyond. Once enough tokens have disappeared through failure (ie: the bad ones), the good ones that remain will still require a large enough user base and funding to prosper and succeed. Having a good product and technology will no longer be enough to remain listed and a few large players will emerge to absorb the smaller players. Because of this inevitable market evolution, there may be as little as 5–10 utility tokens around in 2–3 years time. Ultimately the industry will produce a few Googles, Ubers and Paypals to grow the market into maturity.
(4) US Regulations — Americans have largely been excluded from the crypto craze because of very negative statements from the SEC about utility tokens. Already most US based companies have avoided the US market, and prohibited American investors from investing in their projects due to regulatory concerns at home. When the worlds largest economy is being locked out of participating there is not much hope for sustained customer adoption or global expansion for any product.
So why will Cryptyk survive and prosper ?
You have now read my personal views on the future of the utility token market. We are now seeing the very last of the utility token boom. However I am confident that my company Cryptyk will be one of the few successful utility tokens long term. I firmly believe that we will either grow into something very big or be acquired in a few years by an even bigger player. My confidence is based on the following: —
(A) CTK token is the only SEC compliant utility in the world — while we view the Cryptyk Token (CTK) as a true utility with a real practical use case for blockchain, we have never fooled ourselves into thinking that the SEC will agree us. As a US based company this legal issue was critical to the design of our token sale launch. Consequently we have structured the CTK Token Sale to meet the SEC’s requirements for a security as per Regulation 506(c). We filed for this exemption under US securities law in early 2018 and the SEC has formally accepted our application. This means that (a) US investors have only been able to invest in the private pre-sale round (recently closed), (b) they must be accredited investors and © their tokens have a 1 year lock-in period. Only non-US investors can participate in the current public sale round which has no lock-in period after listing. Consequently CTK will be listed on both utility token exchanges and security token exchanges. In short, CTK is a true utility that also meets the requirements of a security under US law.
(B) A real use case with enormous market potential — CTK tokens drive a new cyber-security and cloud storage ecosystem that can displace 3–4 existing cloud vendors and can cut costs for enterprise customers by over half. Existing cyber-security products are both very expensive and highly ineffective given that losses to hacks is approaching $1 trillion annually. This is a massive global problem for enterprise that is desperate for a new disruptive technology to emerge. Cryptyk will deliver a much more effective product, simpler implementation and lower costs for customers that will ensure significant market penetration. The total addressable market for Cryptyk products exceeds US$100 Billion annually, and only a small percentage of this market share will result in a massive increase in token price.
© Highly experienced team and large strategic partners — our team has enormous experience in many enterprise markets including financial services, government, military, telecoms and healthcare …. all markets that are desperately in need of Cryptyk cyber-security technology. Furthermore we have partnered up with some of the biggest players in the cloud technology space including IBM, Google and Amazon.
(D) Timing of Public Sale — non-US investors can currently purchase CTK tokens until late January at 12.5 cents per token (minimum purchase = US$100). The public sale will be followed by listings on numerous crypto-currency exchanges in February …. right when we expect the alt-coin market to have bottomed out and start to rebound. Hence we have timed our public sale to optimize potential returns for both pre-sale and public investor bases.
In summary I believe that the CTK token is that rare golden opportunity hidden in a mountain of shit tokens obscuring its presence. Interested investors should thoroughly review the project first to verify its unique strengths and market appeal before purchasing. It’s also advisable to read an independent review of Cryptyk
Non-US public investors can currently purchase CTK utility tokens without the KYC approval required for pre-sale rounds or security token offerings.