This article originally appeared on Fintech Finance.
Pundits have been predicting cryptocurrency armageddon for years, and are broadly delighted now that they seem to have been proved correct. The gravity-defying success of cryptocurrency made traditional commentators look stolid and foolish. For years they’ve muttered darkly from the sidelines with a mixture of jealousy and contempt. Now they’re taking a great deal of satisfaction from watching the belle of the ball squirming in the mud.
Schadenfreude aside, they have a point. The tide does seem to have turned against cryptocurrencies. Investors are running scared and all the major cryptocurrencies are in freefall. According to Bloomberg, $640 billion has been wiped off the value of cryptocurrencies in 2018. That’s an astonishing amount of money- something like losing the entire market capitalization of Microsoft corporation down the back of the sofa.
So, is this the end of cryptocurrency as we know it?
Reports on the demise of cryptocurrency have been greatly exaggerated. The genie will not go quietly back into the bottle. Despite all the lurid editorials howling about the end-times, cryptocurrency as a phenomenon isn’t going anywhere: people aren’t going to forget this whole crypto thing, any more than people stopped using the internet after the Dot-Com bust.
The same cannot be said for individual cryptocurrencies. The retreating tide is going to leave plenty of boats on the sharp rocks. We should fully expect that the next months will see a major culling of cryptocurrencies which were never built on anything more than hot air and promises, and a dramatic contraction in the amount of capital made to Initial Coin Offerings.
These had swelled to epic proportions, with investors pouring almost $14bn into ICO’s in the first five months of 2018. When the company behind messaging app Telegram decided they were going to have an ICO, investors coughed up $1.7 billion like a fur ball. Months later the ICO for EOS (crypto types love their three letter combinations) came in at more than $4 billion.
With all this easy money sloshing about, you can hardly blame the opportunists for getting involved. It seemed that anyone who could copy-paste a bit of code could make their millions from an ICO. Before long, you could find templates for writing an ICO white paper on the internet. Big companies shouldered in, hungry for their share of the action. Any mention of a forthcoming ICO could send share prices rocketing.
Buoyed up on this speculative fervor, cryptocurrencies have been insulated from a lot of hard questions. It’s no secret that a lot of low-quality offerings have been bootstrapping on the success of Bitcoin, but as the expanding market brought a ready supply of ever-less-sophisticated investors, this didn’t seem to matter all that much. Thoughtful differentiation wasn’t a priority with all that easy cash around: success was assured and empty sensationalism proved effective.
Companies can now ill-afford complacency of that kind. Whether or not we are witnessing the bursting of the “mother of all bubbles”, as Nouriel Roubini has prophesied, this should be an existential lesson for the world of crypto. This is either a rebirth or a near death experience, and both are profound transitions. It may be that the current crop of cryptocurrencies will rally, and begin to spiral towards giddy new heights. Given the volatility we’ve come to expect, few would be shocked. But investors have had a taste of the apocalypse, and that should be enough to bring on the soul searching.
If the crunch isn’t now, it is coming.
Cryptocurrency brands need to stiffen their resolve, look beyond the abyss, and start planning for life after the apocalypse. The coming months and years will be brutal, and those cryptocurrencies that survive the rout are going to have to renegotiate their position in the world.
One fundamental problem they will face is that cryptocurrencies have so far failed to disentangle themselves from one another. Lacking any meaningful understanding of what they do, the market has tended to treat all cryptocurrencies as a single, un-differentiated mass, content to rise and fall together on the waves of popular opinion. The relative dominance of Bitcoin, which reclaimed its hold over 50% of the total market capital this year is a troubling testament to this confusion. In reality, the crypto world is far from being a homogeneous lump. It’s a veritable Star Wars cantina, teeming with difference: visionaries and hucksters, hard-nosed capitalists and college pranksters. There are a wealth of stories to be found and told.
The next battle will be for differentiation. Somewhere inside this roiling, confused mass there are ideas of dazzling technical brilliance; ideas that have the potential to transform our world. How they communicate themselves will play a big role in determining the players that we’re still talking about five years from now.
Cryptocurrencies have gained the world’s attention: now they need to decide what to do with it. Thoughtful branding can help companies communicate what it is about them that should matter to us. It’s about more than a well-kerned typeface. Brands that are distinctive, clear and helpful always stand the best chance at survival in a cooling market. It’s the reason Coca Cola executives don’t wake up sweating at the thought of rival company launching their own bottled sugar-water.
As we grope blindly towards a mature market, whatever that ends up looking like, cryptocurrencies will need to find a new sense of purpose and begin the slow task of rebuilding their brands. Cryptocurrency brands need to discover and articulate exactly what they stand for. They need to take this opportunity to rebuild their brands on solid, sophisticated investment, rather than chasing the money of ever-greater fools. Investors who truly understand and share a company’s vision will guide it through this bildungsroman period, from childlike enthusiasm to maturity.
Investors are understandably feeling shaky right now, but they should take heart. The fundamental truth has not changed: there’s still gold in them thar hills. Cryptocurrency has incredible potential. I hate to say it, but it’s time for it to grow up and get a job.
Tom Heesom is an Associate Strategist at Siegel+Gale.