Qi Capital
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Qi Capital

Why we will never get rid of Shitcoins

The investor’s purgatory

Investing in crypto projects became extremely popular, especially during the last Bitcoin pump, at the end of 2017. Crypto projects and ICOs were popping out on every corner, masses of people flocking on them, many of them with zero experience of how investments work.

Many of these projects were a pure scam, but those are quite obvious and got pulled down rather soon, thanks to a dedicated crypto community. But there are many projects out there that are on the edge of surviving, credible projects with good intentions, but they cannot get their business model working, and they are running out of cash and ideas. There are probably hundreds of projects out there currently in this situation.

The problem is that those who invested in them have very little knowledge of what is going on, and even if some negative news does surface, it’s often labeled as FUD by those who hold the bags of tokens. Due to lack of experience and knowledge, many people keep their coins indefinite without asking too many questions, hoping that one day it will go x50 or x100.

But it won’t, and there is nobody to tell them that straight, and here is why.

In the normal startup world, one we had before the crypto craze took over, when founders were facing the problem, realizing that they have hit the wall with their idea or business model, the procedure to come out of it is pretty straightforward. Painful but straightforward. They have to call their VC (or a group of them) and tell them the bad news. After initiate shock, they might decide to pivot into something else or pay all the bills and return the rest of the money to VCs. Simple as that.

In the crypto world, this is far more complicated. Most of these projects are not backed up by VC; they got their money through ICO or some other variation where the users bought their tokens on an exchange.

Now, imagine founders realizing that the idea they have in their hands is not working? They have probably millions of dollars worth of tokens in their cold wallets, while investors have millions of dollars too. If founders decide to inform their investors about the situation, the value of these tokens will hit zero within a couple of hours. If they keep quiet, which most of them do, they will have to pretend that they are doing something, figuring out how to get out of this situation. This pretending can go on forever. They could sell their coins quietly and slowly, but this is what we call an exit scam; nobody will ever trust these people again. Their adventure of being an entrepreneur would be over, and they could kiss goodbye to all future ideas.

So what would be an appropriate reaction in such a situation? Hard to say. It seems the root of the problem is that the troubled companies are holding large amounts of tokens instead of selling them early enough to get some cold cash or another cryptocurrency. If they do so, they could offer investors to buy back those tokens; even if it's 30%-40% lower than the market price, it’s still something.

As we can see, things are rather complicated in the crypto world, and this is the reason why many are calling for regulations of this space because what we have now is one big hot mess. There are hundreds of crypto projects out there in this situation; I can’t imagine how painful it must be for founders. Their future and reputation are on the line, and I’m pretty sure that they would give anything to be able to deal with a few VCs, making that one tough phone call, and not with thousands of angry investors flooding their Twitter timelines and inboxes with threats and insults.

Shitcoins are here to stay; people will hold on to them like old pictures and documents that are cluttering our computers, unable to delete them, thinking that they might have some value one day.

Some of these projects will practically never go away, or it might take decades until the last investor realizes that the lunch money he or she invested a long time ago will not bring them early retirement, as they hoped for. Even if the project is completely dead, crypto whales can pump the prices from time to time, making everybody excited again, so they can hold their bags tighter and longer, keeping that imaginary value high, which might bring even more investors in.

In the investor's purgatory.




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Jonny Qi

Jonny Qi

Chief Narrative Officer at Qi_Capital

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