In March, Vinny Lingham tweeted his alarming message:
Andreas Antonopoulos retweeted this on 25th April. Contrast this with a quote from Fred Wilson. 'Nothing important has ever been built without irrational exuberance'. ICO mania is indeed getting worse, but is it cause for long term concern, or a promising sign?
In a previous essay I discussed in my conclusion that speculative bubbles:
I’m not exactly sure what alternative ending they both expect in a largely unregulated market that is beginning to pull in novice investors. Let’s look at some historical examples in reverse order:
Dot Com Bubble -
Post-crash regulations have disincentivized tech companies from going public early, but they did not stop the march of the internet. I have argued that an overly heavy hand may be contributing to the current frenzied speculation around cryptocurrencies. But when the dust settles, the backbone will be built. Unlike the Dot Com Bubble, this backbone is investable.
Mississippi and South Sea Bubble.
To quote Paul Graham ‘The same thing [wild speculation] happened during the Mississippi and South Sea Bubbles. What drove them was the invention of organized public finance (the South Sea Company, despite its name, was really a competitor of the Bank of England). And that did turn out to be a big deal, in the long run.’
Early US Stock Market Bubble -
In February Chris Burniske posted some good tweets that highlight the scams that occurred in the early days of this market. Once scam protections were implemented, the US stock market created an unprecedented amount of wealth for investors.
In a previous essay I discussed in my conclusion that speculative bubbles:
- Are inevitable and unpreventable.
- The crashes that follow serve important, useful functions like exposing cracks, protecting novice investors and preventing future scams.
I’m not exactly sure what alternative ending they both expect in a largely unregulated market that is beginning to pull in novice investors. Let’s look at some historical examples in reverse order:
Dot Com Bubble -
Post-crash regulations have disincentivized tech companies from going public early, but they did not stop the march of the internet. I have argued that an overly heavy hand may be contributing to the current frenzied speculation around cryptocurrencies. But when the dust settles, the backbone will be built. Unlike the Dot Com Bubble, this backbone is investable.
Mississippi and South Sea Bubble.
To quote Paul Graham ‘The same thing [wild speculation] happened during the Mississippi and South Sea Bubbles. What drove them was the invention of organized public finance (the South Sea Company, despite its name, was really a competitor of the Bank of England). And that did turn out to be a big deal, in the long run.’
Early US Stock Market Bubble -
In February Chris Burniske posted some good tweets that highlight the scams that occurred in the early days of this market. Once scam protections were implemented, the US stock market created an unprecedented amount of wealth for investors.
Protections for investors and other regulations will follow this speculative cycle, or whichever one gets big enough to affect a mainstream audience. Ultimately the government will provide tighter regulations for how businesses can operate in the US. If the regulations are too strict, cryptocurrency businesses will move abroad. I’m not sure that constitutes ending badly. It may delay the growth of the industry, but it is unlikely to destroy it.
Nick Tomaino has suggested that we need industry standards for ICO’s and I agree. But there is no strong incentive for everyone to follow them until there are severe consequences for not following them. To quote Charlie Munger. 'Never, think about something else when you should be thinking about the power of incentives'. Regulation comes after speculative frenzy. Not before or during it.
If you hoped that bubbles, crashes and regulation could be avoided, it is worth going back to study the history of markets. I suspect that what Vinny meant is that it will be bad in the short term for new market entrants. While this may be the case, there has never been a way to stop speculation on a new technology from happening in advance.
I’ll let Naval represent my opinion on whether it is worth bouncing in and out in uncertain times.
Nick Tomaino has suggested that we need industry standards for ICO’s and I agree. But there is no strong incentive for everyone to follow them until there are severe consequences for not following them. To quote Charlie Munger. 'Never, think about something else when you should be thinking about the power of incentives'. Regulation comes after speculative frenzy. Not before or during it.
If you hoped that bubbles, crashes and regulation could be avoided, it is worth going back to study the history of markets. I suspect that what Vinny meant is that it will be bad in the short term for new market entrants. While this may be the case, there has never been a way to stop speculation on a new technology from happening in advance.
I’ll let Naval represent my opinion on whether it is worth bouncing in and out in uncertain times.
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