Over the last week we have seen some amazing gains from coins that have very little of an actual product to show for their huge valuations. And while this isn’t altogether new when it comes to crypto, it does appear to be an accelerating trend and one that investors are more than happy to play along with as long as it means they have a shot at 1000% returns every few weeks. For this reason, I think we may be entering a new kind of market where this behavior is one of the dominant attributes, and also why it could go on pretty much indefinitely due to a unique property of these coins and exchanges.
Let’s take a look at the coin everyone seems to have a very strong opinion about, and that’s TRX. Tron has seen an amazing run, shooting up to $.25 from as low as $.01 just two weeks ago. But all this attention from investors has also attracted detractors. Those detractors claim that the white paper behind TRX is pretty much devoid of any real information and just filled with buzz words. Others claim the white paper was straight plagiarized from other sources with parts lazily copy and pasted as well as grammatical and formatting errors.
Now I think we can all agree that the current state of crypto is mostly a “fake it till you make it” type of thing. Most of these teams have made promises in order to raise money and they hope to somehow develop what they promised before investors lose patience.
But in the case of TRX, whether or not these allegations regarding a plagiarized white paper turn out the be true really doesn’t matter in the short term. Investors have made huge returns as did the team behind TRX, so honestly the whole thing could come down over the next few weeks and so many people made so much money, that there would be barely a complaint when it all started again with another coin simply based on a white paper. Nobody would say, remember what TRX did to us? Because TRX made a lot of people money, so investors would be more than happy to get TRX’ed again.
And this is where I am going to make my argument. As long as there is a never ending series of coins to replace the ones that get exposed at some point for not being able to fulfill their promise, this behavior can go on almost indefinitely. As several coins ride the hype train to 1000% returns and then slowly settle back down, other coins will do the same, promising more new technology and new partnerships and nobody will care if it’s true or not, because none of that is relevant.
To be honest, I’m not even saying this is a bad thing. Because during this whole phase of scam coins replacing each other as the hot coin of the month, the real coins and the real projects can still churn away on their code and eventually they will produce something real, and when they do it will get rewarded by the market.
But you may be asking if this is just creating a bubble, like the tech companies of the dot com bubble. Eventually the money will dry up and the bubble will burst. But to that I would say there is a distinct difference between the two and will prevent a crypto bubble burst like in the dot com era.
During the dot com run, it was not sustainable to keep pumping out new companies for investors to jump on to as the old ones failed to deliver on their promise. The reason being that those had the be REAL companies, which required real investments from venture capital before finally making it to the IPO stage so they could get onto the stock market. This costs a lot of money up front and as things slowed down and the hype cooled around tech, so did the money to fuel these new companies to replace all the Pets.com companies that didn’t deliver. This is when the bubble bursts.
However, in crypto, this isn’t the case at all. If your only goal is to get your coin on the exchanges and then try to run up it up to $.20 cents, you don’t even need a real ICO that raises much money. You don’t need to raise tens of millions of dollars to launch your coin since it’s only a whitepaper anyway. In fact you can do it for very little money, and with the possibility of making billions by just raising your coin price a few cents, it makes it very easy to find the needed money to launch pretty much any whitepaper based coin you can think of. And this is the reason there can be an endless supply of pie in they sky coins promising the world, one after the other, and replacing all the ones before it that never fulfilled their promise.
As long as the coins keep coming, investors will not care whether the projects are real or not. As long as they can create the hype that says money will flow into these coins, investors will jump on board and hope to ride it to quick profits. Another thing that perpetuates this cycle is the fact that the exchanges are making money from it. They get a nice cut for listing coins and in some cases, run contests to boost the volume and profile of the coin. It’s really a tailor made system to perpetuate pump and dumps for as long as possible.
As long as the profits are there, I can see this going on for a while in 2018.