I was recently chatting with a friend who has been an investor in the tech venture capital space for over a decade and is now being drawn to the crypto-space. Who isn’t!
I said to him that I’m not sure how long the current frenzy and high valuations will continue, and he responded that maybe this is the new normal. In truth, I had been wondering the same as well, but haven’t written my thoughts on it yet.
I'm all for defying norms when it comes to innovation and progress, but to think that we can keep flying at orders of magnitude above normality forever is a fairly bold and daring belief.
This type of gravity-defying thinking could be dangerous. There are many things that are not “normal” in today’s blockchain environment, especially pertaining to ICOs. I’ve already echoed some dissatisfaction with how ICOs are conducted last July in 10 Things I Don’t Like About ICOs. Here’s a list of abnormal or “new normal” things that I’m seeing today:
- Extremely high overall (and specific) crypto market capitalizations
- Applications being valued at similar ratios as protocols or infrastructure
- Financial returns at x30 and x100 in a few months, certainly less than a year
- Daily and weekly volatility in the 30-100% ranges
- Teams getting funded without a product or product experience
- Teams getting funded way more than they should be
- Paper theory and marketing zeal trumping entrepreneurial chops or ideas viability
- Little correlation between cryptocurrency prices and actual usage/ecosystem metrics
- Treating tokens like stock and currency together (analogy is if you could only pay for Apple products with Apple stock)
- Not able to accurately understand the economics of token-based models
- Unclear regulation, with a perception that it can be exploited
- Poor market liquidity once you go past the top cryptocurrencies (hence, many paper valuations)
One can be optimistic or pessimistic. One can hope this is the new normal, or one can hope that the points I enumerated above will go away. Of course, you can also think these issues are trivial and inconsequential to where the market is going.
People can get used to abnormal situations all the time, because human nature knows how to adapt ... until reality hits us in the face or rears its head at the most unexpected moment.
Back in the dotcom days, prior to the crash, many believed that the sky was the limit, and that many abnormal characteristics were normal and due course. I keep remembering that.
I’m all for pushing innovation further and higher. This incredible crypto-capital availability is amazing for funding innovation and experimentation in new business and technology usage models. I just hope that we get to see enough significant breakthroughs before a return to normalcy returns, so we have something lasting to hang on to.
Normalcy is a relative word. Sometimes the new normal is indefinite. Sometimes it is not.