I am often asked what I think about “investing” in cryptocurrencies like bitcoin or ethereum, and more recently about initial coin offerings (ICOs). Just as I say one does not “invest in a currency” (you can either speculate that a currency will rise or fall in value, or convert money into the currency to buy a real investment denominated in that currency), I have viewed “buy and hope” trades on bitcoin and other cryptocurrencies as out and out gambles, as much as I like the technology that underlies them. I earlier published 6 reasons I’m glad US regulators have so far blocked bitcoin ETFs from going mainstream, the main one being how price speculation distracts from investing in actual applications of blockchain technology that will actually help people. For gold bugs who worry about the collapse of the dollar, euro, yen, or rupee, I have suggested looking at inflation-linked bonds, and why even gold is a relatively foolish place to keep money.
ICOs seem to be the hot new way to raise money in 2017, with CNBC reporting that the US$1.2 billion raised through ICOs in 2017 so far has surpassed traditional VC funding. On one hand, I believe ICOs are an excellent application of blockchain technology in making the primary and secondary markets more automated, streamlined, and accessible, and hopefully more transparent. I have early written how blockchain technology is likely to do to costly and time consuming back offices what e-mail did to post offices, and three years before the ICO craze I wrote about how something like ICOs would streamline fund distribution and administration. So naturally, of all ICOs I’ve seen this year, I was intrigued to see one by a project called Jibrel, which promises to wrap traditional assets into Ethereum blockchain tokens which they call “CryDRs” (crypto depository receipts, a digital version of ADR = American Depository Receipts or SPDRs = S&P 500 stock index Depository Receipts), and seems to have an ICO closing in about 2 weeks.
The biggest issue I have had with cryptocurrencies so far is how their extreme volatility makes them unusable for mainstream payments and other financial applications to be denominated in them, but being able to send someone US dollars, treasury bonds, part ownership in a building, or shares of Visa stock from phone to phone as easily as I can send bitcoin or a WhatsApp message is truly revolutionary. I will not be buying into this ICO, but will definitely be watching this space.
Keen to hear your thoughts on this ICO or other blockchain applications you see developing,