By Matthew Reynolds
The cryptocurrency markets have been dealt a series of major blows in the last week, leaving investors, programmers, and me confused about the future of digital money. China, a key market for cryptocurrencies, is shutting down its Bitcoin exchange at the end of the month. Jamie Dimon, CEO of J.P. Morgan, bashed Bitcoin with a series of attacks and criticisms. The US is regulating ICOs and China has banned them altogether. And crypto-markets have reacted accordingly -- with red arrows across the board. The co-founder of Ethereum, Vitalik Buterin, believes we are in an ICO bubble, and I agree.
On the surface, it looks like the death of cryptocoins - but I’m ignoring this, along with thousands of other coin holders. I believe that after the dust has cleared, cryptocurrencies will still be strong because they represent a changing future. I’ve spent a good percentage of my summer familiarizing myself with the crypto-ecosystem, and debated with knowledgeable and experienced friends about the nuances of the community. And the more I learn, the more I see the value in a future of digital, decentralized currency. I’m in this for the long run.
Some investors saw the Bitcoin surge and viewed other coins as a get-rich-quick scheme, where “whales” could sneak in during the ICO period, gather coins at discount, then dump them after the public pumps the price up. Development teams view this initial investment as a juicy opportunity, so they go to ICO before they’re ready; it’s a familiar story, and mirrors the start-up/IPO relationship. In the short term, it hurts the markets. There is definitely an overcrowding problem, and the frequency and overvaluation of these ICOs will damage the value of coins across the board. Of the hundreds of smaller coins in existence, only a handful will survive when the bubble bursts, while most of the smaller coins disappear in a market culling.
But I’ve learned that coins with a strong development team, faithful investors, and a meaningful purpose will weather the storm - because that’s what successful innovators do. Amazon and Ebay weren’t eliminated by the dotcom bubble in the early days of the internet because they had a service with potential and utility. Now, they’ve changed the way businesses interact with consumers forever. Bitcoin and Ethereum have the potential to do something similar; they have a vision of cutting out the costs and inefficiencies of the banking middle-man, and making P2P payments simple and uniform across the world.
I respect Mr. Dimon’s opinion on the matter. As the CEO of a global organization, there are things he sees that I can’t. And I mirror his opinion that blockchain, separate from currencies, is valuable. That being said, I find it difficult to buy into claims that Bitcoin is a “fraud” mainly due to the fact that J.P. Morgan was fined $13 billion dollars in 2013 for issuing fraudulent mortgages. I genuinely believe Mr. Dimon is being short-sighted in this matter, and is quite possibly lashing out because he’s scared the emergence of digital currencies and blockchain will hurt his business. I don’t think the banks will disappear. On the contrary – I think the most innovative banks will find a way to partner with digital currencies and work in unison.
But to think that decentralized currencies are a “fraud,” that people who trade it are “stupid,” and that anyone dealing with Bitcoin is “wasting [their] time” might be printed in a financial history book in 100 years – but only time will tell.
Full disclosure: I currently own Ethereum (ETH) and OmiseGO (OMG) – two alternative coins to Bitcoin (BTC).
Matthew Reynolds is an Associate Editor at Oxford Economics and a member of the Thought Leadership technology practice.