The crypto market has been running on steroids, and like an adrenaline junkie, it risks seriously burning out or suffering a catastrophic heart attack.
In fact, the industry is evolving at such a breakneck speed that Morgan Stanley recently drew parallels between crypto and the Nasdaq prior to the Dotcom crash, saying the only difference is that the crypto market is evolving 15x faster.
Major Shakeout Looming
It's a well-established fact that early-stage industries tend to be heavily fragmented before embarking on a consolidation phase as they mature. But things have been a lot more dramatic in cryptoland.
From just a few dozen cryptos a few years ago, the crypto industry now has a deluge of digital coins with the tally now approaching 2,000.
The cryptocurrency industry is so heavily fragmented and littered with scams that a huge consolidation exercise is the only way to clean it up.
The DeadCoins websites lists nearly 800 cryptocurrencies that have been deceased, and the list keeps growing.
Explosive growth by ICOs gives you an idea of what is at stake here.
Through ICOs, startups design tokens which are sold in secondary markets via a crowdfunded model. All token sales are powered by blockchain technology. This novel fundraising mechanism has proven very popular, thanks to its key attractions including zero dilution for the owners, strong network effect and high returns. Indeed, ICOs are frequently oversubscribed and have already overtaken VCs as the preferred method for startups to raise equity.
Startups raised more than $5 billion through ICOs in 2017 by selling hundreds of coins in the digital bazaar, and industry experts see this ending in pain and tears for many investors.
A worrying trend in the market is that a lot of money has been going into weak and unproven technologies that are likely to fail the test of time.
If you want to know how far investors are willing to go with their crypto investments, look no further than Dogecoin.
From 2013-2014, Dogecoin managed to carve a respectable niche in the crypto world as a currency mainly because rivals such as Bitcoin and Litecoin were considered serious assets. Every day, thousands of Dogecoins would zip around Reddit and Twitter. Dogecoin was able thrive for years despite receiving zero upgrades. That surprised even their founder, Jack Palmer.
With so much money being pumped into unproven cryptos, it might take years before self-regulation is able to weed out weak or worthless players.
Cloud Evolution Provides a Blueprint
The cloud industry gives you a good idea of how the crypto evolution might progress.
The cloud begun as a novel concept of remote server access. Once it achieved mainstream adoption, it sparked off an app-building mania very similar to the token mania we have been witnessing with ERC20 (Ethereum’s Token Standard Interface).
But once the cloud ecosystem became flooded with apps and tools, larger platforms created huge networks of native applications that enabled companies to adopt other successful tools via APIs.
Meanwhile, weaker technologies were gradually eclipsed while others were acquired by the titans.
Ethereum co-founder Vitalik Buterin has predicted that at least 90 percent of cryptocurrencies on built on the Ether blockchain will end up worthless. Another Ethereum co-founder, Charles Hoskinson, says the crypto market will first go through a massive crash before proper consolidation begins in earnest.