What Happens When the Crypto Runs Out?

Imagine making over $15 million in 10 minutes. That works out to be $1.5 million per minute. Or $25,000 per second.

Crazy right?

How about $45.53 million in 60 seconds? That works out at $758,000 per second.

Even more insane.

Well then making $44.27 million in just 30 seconds is outright bonkers. That’s a whopping $737,833 per second.

For comparative purposes, Lionel Messi is the world’s highest paid footballer. He makes UK£40.5 million a year in wages (AU$71.88 million). That works out at £77 per minute, or just over AU$136 per minute.

Lionel (even if he weren’t paying his taxes) wouldn’t come close to the kind of money being made in crypto right now.

The $15 million in 10 minutes mentioned above was for the ‘Gnosis’ project.

The $45.53 million in 60 seconds was the ‘SingularityNet’ project.

And $44.27 million in 30 seconds was the ‘Basic Attention Token’.

All of that money was raised by the projects during their ‘initial coin offering’ (ICO) phase. Think of it like an initial public offering (IPO) that public companies go through, but with cryptocurrency, not stock.

And remember that crypto comes with absolutely none of the rights that a stock issue has.

Still, these ICOs from these three weren’t even some of the biggest projects. Projects like Filecoin, Tezos and Sirin Labs all raised well in excess of $150 million in their ICOs.

But Gnosis, SingularityNet and Basic Attention Token were three of the fastest on record.

And the ‘valuations’ placed on many of these projects today extends to hundreds of millions — sometimes billions.

Ed note: the current popularly accepted ‘valuation’ on a project is the circulation value of its tokens. The general assumption is this is a project’s ‘market cap’. While it’s a reasonable ranking system, it’s horribly incorrect to define circulating token values as market cap. And by no means is an appropriate valuation for a crypto.

Having said all that, the topic of discussion here today isn’t about the valuation of these projects. It’s not about how to best define a crypto project’s ‘market cap’.

You see, there’s no point valuing a token or a project that simply might not exist by Christmas this year.

When the music stops

In 2017 the ability to raise money through an ICO was incredible. You could easily pull in tens of millions worth of fiat money and crypto contributions in a matter of minutes.

You didn’t even need a working product. You just needed a credible team and a half decent website and whitepaper. That was sufficient for people to throw money at you.

Inevitably, this left a whole heap of new crypto projects with huge wads of cash.

Most of them had included some kind of plan, roadmap or strategy as part of their whitepaper. Many times this meant hiring new people to build or develop their project.

They suddenly had money to pay people, to push the project forward. It meant they could execute on their plans.

But there was one huge problem. 

You have to run a company. And that means money.

Here’s the crux of the problem. If a project like Gnosis raises $15 million in 10 minutes, that’s great. And then even today their total circulating token value makes them ‘worth’ $220 million.

But their project is a predictions app. You can use their platform to ‘win’ GNO tokens for successful predictions.

So far so good…maybe. But these things require users. And if you’re going to run a long term viable project, then you need to have a product that users will want to use.

Gnosis has 31 people listed on the team. They need to be paid. And wherever the project is based needs to have internet connectivity, computers, servers, office equipment, lights, running water, and heat (or air conditioning). Everything a company needs to function.

These things all cost money. And for now, paying these expenses in crypto isn’t sufficient. British Gas or NVIDIA aren’t taking GNO or even ETH or BTC last time I checked.

And sure, GNO tokens are roughly five-times more than their initial ICO price of US$30. But that’s only because BTC is worth $12,774 and ETH is worth $1,186 (at the time of writing).

So yes, the team could (and will) likely sell off tokens to fund things ongoing…at least for a while.

But there are two big problems here. The first is when crypto markets tumble and they are forced to sell GNO at lower prices to fund operations. Of course, that works for when prices are higher too, giving them more bang for buck. But either way it means a depleting store of tokens.

What happens in 10 months, a year, 18 months when the token stores are running low? What happens when the music stops and the money raised in these ICOs runs out?

I don’t mean to pick on Gnosis here. This applies to all new crypto projects funded through ICOs.

The fastest path to zero

Having worked in traditional capital markets for over a decade, we know a thing or two about early stage companies. We see it with IPO stocks all the time. They launch, raise a heap of capital, and then go about delivering.

At least, they try to. The advantage IPO companies have is when they burn through the initial capital, they can go back to the market and do a capital raising. It’s almost like another IPO. Or they can raise the money from private and institutional investors — which they often do.

If they can demonstrate revenues, cash flow, and growth to satisfy a lender, they can borrow money. This injection of capital helps keep them going as they progress the projects.

It’s rare to see an early stage IPO stock not need to do a capital raise early on. They all burn money. Some faster than others.

The ICO market is no different. These are startup companies. They will burn cash to develop, market, and pay operational costs. But the big difference here is they can’t just go and do a new ICO. They can’t just issue more tokens when they’ve said in the first ICO that there will be a finite number of tokens.

Their only option is to sell their tokens. But like we say, when the money runs out then what? Well they could try traditional institutional and private funding. But institutions won’t go near ICOs right now.

And the banks…ha. Cross that one off the list.

The only way good projects will survive is to bring on users and generate fees and operational revenues from a functional, working platform or product. In absence of that they will simply run out of money, fold, and be done with the project.

Unfortunately that also means any ‘investor’ that’s holding those tokens at this point would be holding tokens worth nothing.

And in 2018 all those projects, which promised the world last year, now have to deliver. They have to be able to show the money they raised can build a network of users who actually use the product or platform. They have to get people away from rampant speculation and turn them into actual users.

If they can’t do this, if they can’t generate revenues via crypto tokens or fiat money, they will run out of money soon. In the coming months we will start to see this unfold. There will be projects that will fail in 2018, and even more in 2019.

They won’t tell the market about it either. They don’t have to. The only time you’ll hear about it is the day they fold and the token values drop to zero.

The great news is that while many will fail, there are also loads that will succeed. There are some crypto projects out there that will be the Amazon, Google or Facebook of the crypto world in coming years.

They’re the ones you want to be in on. They’re the ones that could deliver life-changing crypto wealth.

It’s why you must not throw blind money at any old crypto. You must get into the ones with the potential to build a thriving community of users. You must avoid the ones that are teetering on the brink of destruction, which no one’s going to actually use.

You must ensure these cryptos have a long-term future and not just short-term hype and rampant speculation. Blind money into any old crypto is a path to zero. Pick the right ones and you might just be on a path to riches.

Sam Volkering,
Editor, Secret Crypto Network

Sam Volkering is an Editor for Money Morning and is small-cap, cryptocurrency and technology expert.

He’s not interested in boring blue chip stocks. He’s after explosive investments; companies whose shares trade for cents on the dollar, cryptocurrencies that can deliver life-changing returns. He looks for the ‘edge of the bell curve’ opportunities that are often shunned by those in the financial services industry.

If you’d like to learn about the specific investments Sam is recommending in either small-cap stocks or cryptocurrencies, take a 30-day trial of his small-cap investment advisory Australian Small-Cap Investigator here, or a 30-day trial of his industry leading cryptocurrency service, Sam Volkering’s Secret Crypto Network here.

But that’s not where Sam’s talents end. Sam specialises in finding new, cutting edge tech and translating that research into how the future will look — and where the opportunities lie. It’s his job to trawl the world to find, analyse, research and recommend investments in the world’s most revolutionary companies.

He recommends the best ones he finds in his premium investment service, Revolutionary Tech Investor. Sam goes to the lengths of the globe and works 24/7 to get these opportunities to you before the mainstream catches on. Click here to take a 30-day no-obligation trial of Revolutionary Tech Investor today.

Websites and financial e-letters Sam writes for:

Money Morning Australia