Here's why and how the Crypto Bubble will burst

What's going on: Especially in exciting times like these it's good to keep a realistic view on the crypto space. While I do think that this is a revolution in the making, there are also a lot of things that could go wrong a smell a whole lot like "bubble".

I read this article on the weekend and it's a very good and yet neutral summary of the eligible considerations: most ICOs are shady as hell and the startups behind them will most definitely fail; the whole market is mainly driven by fear, emotions and pump-and-dump-get-rich-mentality; real regulation is still missing and so on.

The author argues that he sees an ICO-bubble, mainly concerning security tokens, that most ICO-tokens are. So when the US and EU are enforcing regulations, the bubble will pop: "As a result, all major exchanges that have any kind of human owners, developers or known actors will be mandated to de-list all of these security token with immediate effect and they will follow this order. As for decentralized exchanges, given the trade in these token will be illegal and the projects that sold them might well have to refund investors, I am not so sure these are the way out that solves everything. I actually hope they aren’t because regulatory certainty is a positive, not a negative. When this happens, all ICOs will lose 90%+ of their value (just like during the .com bubble…) regardless of the strength of their projects. I keep bringing this up, but Amazon fell to 5.5 USD / share in 2001. It now trades at 1000 USD+. So also the good projects will fall 80–90%."

Why should I care: While you might think that all this is a bit too pessimistic, you should keep in mind that you should always consider worst case scenarious and act accordingly (for example that you should only invest what you can easily afford to lose). And you also should be really, really skeptical when it comes to ICOs.

But there is also a positive side, so take a look at this passage from the article: "In the aftermath of this ICO carnage, I would expect the same story as with the internet firms from 2001. Really good projects will give their token holders equity-like rights and fulfill securities regulations. New ICOs will be strong companies that will have a good value proposition and again, will actually be selling something valuable and not just hot air. When this ICO 2.0 phase starts, platforms such as Ethereum will also strongly recover. Just like it happened with the .com firms, I expect this wash out to be a positive medium term effect and to unlock a lot of value. There is not a doubt in my mind that the blockchain (and with it networks like Ethereum and currencies like Bitcoin) will to a large extent replace current market infrastructure and even actors (like banks and clearing houses or stock exchanges). But the wash out will need to happen before that and it will happen. It is not a question of IF, but WHEN."

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