Is the crypto gold rush over?
The internet is slowly becoming a crypto-graveyard. This is after cryptocurrency after cryptocurrency, often created as part of an initial coin offering (ICO), lose their value, rendering them worthless. In fact, one website which tracks failing cryptocurrencies claims that there are over 800 cryptocurrencies that trade for less than a cent.
This raises serious questions about the legitimacy of the ICO market, which is largely unregulated. Yet despite this, money continues to pour into ICOs. Companies raised US$3.8bn via ICOs in 2017 and by July this year fundraising through ICOs had hit US$11.9bn.
The problem is that for every legitimate fund raising there are several ICOs that are scams or jokes. Some of these are obvious, such as BUTT-Coin and Koindashian. Others, however, seem legitimate. Take LoopX, for example, the coin was created as part of an ICO to raise money for what seemed like a promising lending platform. Then just after the ICO they took down the website, left Twitter and cleared off with the money. As a result of these scams, investors lost US$233m in 2017 – much more was lost due to the proceeds of ICOs being stolen by hackers as well.
The fact that ICOs have gone this way shouldn’t be a surprise; ICOs are like the California Gold Rush or DotCom bubble in the sense that people think they can get rich quick and ignore the risks. It is a shame that ICOs are being tarnished though, because legitimate ICOs offer businesses an innovative way to raise funds quickly and without the costs associated with traditional forms of fundraising. ICOs also democratise finance, allowing retail investors to access a wider range of investment products.
It’s not just the cryptocurrencies created through ICOs that are having a tough time. The grand-crypto-daddy itself, Bitcoin, is also struggling and has fallen around 70% since it reached its record-high of US$20,000 in 2017. Morgan Stanley states that Bitcoin’s decline is happening 15 times faster than the bursting of the DotCom bubble.
What does this all mean? Is crypto-mania over? Has the cryptocurrency experiment been a failure? Probably not, the likelihood is that cryptocurrencies are here to stay in some shape or form. In fact, they will likely develop over time as technological advancements, enhanced security and greater regulation rebuild confidence and enhance the coins utility.
So, whilst cryptocurrencies shouldn’t be the number one topic of discussion within the treasury department, it would be remiss to ignore them. If the last few years have proven anything, it is that technology trends evolve quickly and something can become widely used almost overnight. Treasurers, therefore, don’t want to miss the opportunity to perhaps issue an ICO or receive payments using a cryptocurrency if that is what customers want. Ultimately, like with most things, treasurers must proactively monitor what is happening, ensuring the business is ready to act when the time comes.