Cryptocurrency startups around the world have raised billions of dollars over the last 18 months to build software companies that they hope will rewrite the rules of everything from voting to stock trading.
But even many cryptocurrency advocates expect the majority of projects to fail.
“Ninety five percent are going to end as nothing because that’s startup funding,” Yoni Assia, the CEO of eToro, a social trading platform that supports a range of cryptocurrencies, told Business Insider this week.
His comments mirror those of Joseph Lubin, the cofounder of cryptocurrency ethereum, who this week compared the crypto boom to the dotcom bubble of the late 1990s that ended in a spectacular bust in the early 2000s.
Lubin told a press conference at MoneyConf in Dublin: “If you look at the dotcom boom and bust, there were so many of the same issues back then. So much money invested, lots of money lost, lots of failing projects.”
Dominik Schiener, the creator of cryptocurrency IOTA, told BI earlier this year he expects less than 10 of the more than 1,400 crypto projects that have sprung up over the last two years to survive and Danny Masters, a former JPMorgan trader turned crypto investor told BI that just 5% of projects are worth backing.
All four are far from crypto sceptics, though. They believe that those projects that do survive will transform the world and make huge amounts of money for those who back them.
Huge amounts of capital have been invested into new cryptocurrency businesses over the last 18 months, largely through so-called initial coin offerings (ICOs). This is where startups issue their own cryptocurrencies, structured similarly to bitcoin, in exchange for money to fund their projects.
Over $9 billion has been raised through ICOs since the start of the year, according to consultancy Autonomous NEXT.
Assia said: “You have something that you’ve never had before, not even in the dotcom bubble: if you have a genius idea now and you put a whitepaper on it and suddenly you have 100,000 millionaires reading it and saying ‘hmm, that’s a really good idea.’ If 1,000 put in $10,000 — which is not a lot of money for those 100,000 — you just raised $10 million for your ICO. That scale has never happened before.”
As with any investment, there are risks — high risks, in the case of ICOs. The sector is largely unregulated around the world and has already grappled with a fraud problem. Over time many projects are likely to fail, just as the majority of VC-funded startups do.
‘As good as an investment in the internet 10 years ago’
Still, crypto enthusiasts expect the companies that do survive to create huge amounts of value thanks to what they see as the transformative potential of blockchain, the technology that underpins cryptocurrencies.
Obi Nwosu, the CEO of bitcoin exchange Coinfloor, told BI this week: “If in 15 years only 1 in 10, or even 1 in 20, survive then we’re looking at dozens of potentially killer apps.”
Crypto bulls believe blockchain technology — a public, immutable ledger that can be edited by multiple, permissioned parties — has the potential to remake society by offering the promise of programmable assets.
Imagine if your pound coin or stock certificate could automatically transfer itself to another owner once the counterparty in a contract completes their side of the bargain. Or, imagine your medical records could be held in a public database that travels across borders with you as easily as a passport. Or, picture voter ID embedded on a blockchain database and accessible only by you, potentially eradicating voter fraud. These are all the types of projects floated by blockchain advocates.
Lubin said this week: “This technology is so profound, it’s going to do so many amazing things for economic, social, and political systems worldwide.”
Investing in crypto now is “as good as an investment in the internet 10 years ago,” Assia said, suggesting that blockchain could be as transformative as the internet has been. “Tesla made 2,000%, Facebook made 1,000%, Google made 1,000%. This is the same thing but earlier in the cycle.”
Lubin made a similar analogy at MoneyConf, comparing the cryptocurrency boom to the “creative destruction” of the dotcom bubble. While many projects failed, they paved the way for the successful internet businesses that came after. Some — such as Google and Amazon — also rode out the dotcom boom and bust.
Much of this success would have been hard to foresee in 2000 — who would have predicted that a search engine would end up pioneering self-driving cars and exploring new areas of medicine? Likewise, the exact topography of a crypto future is hard to pinpoint but it’s the direction of travel that matters.
“My long-term view is selling crypto now is like selling Apple in 2001,” Assia, who is invested in bitcoin and ethereum, said. “You do it if you have to do it, you don’t do it if you don’t have to do it. That’s my personal view, again, every person has to decide for themselves.”