By Bruce Elliott
The crypto Icarus has fallen.
The glory days of speculative, hockey-stick crypto growth are over. Even Vitalik Buterin, the creator of the reigning competitor to Bitcoin, Ethereum, has publicly admitted that we’ve hit a “dead end.”
In 2017, any startup could write a white paper, reveal a dazzling vision, assemble an impressive team, and conduct an Initial Coin Offering—all without writing a single line of code. In 2018, the majority of ICOs have been unmasked as scams. Regulators are clamping down, with fewer global ICOs being open to U.S. investors. Those startups that are building lasting products are bleeding cash, as the value of their digital coffers has plummeted by at least 85 percent in the past few months.
It’s a bleak picture for speculators, but it’s not all bad. I would argue that the great bloodbath of 2018 has been a blessing in disguise. It has thrown into stark relief the truth that it’s time to separate the wheat from the chaff. We are beginning to understand that only once blockchain platforms are built and transacting, with real customers, should public ICOs even be considered. And while crypto prices have taken a nosedive, they’ve also stabilized, and institutional investors—who will play a crucial role in the next phase of blockchain adoption—are setting their sights on an asset class that’s entering a new phase of mature young adulthood.
Much has been made about how far we are from, and what needs to happen before, the floodgates will open for institutional investment to pour (instead of trickle) into the space. Across the board, industry players are emphasizing regulatory clarity, transparency, trust and stability. And while these elements certainly are critical to institutional buy-ins, they gloss over two key pieces of the puzzle.
No. 1: Confidence That Crypto Isn’t a Passing Phase
Mainstream investors must overcome a key psychological barrier before trust and security fall into place: Crypto is not being used by a lot of people for practical purposes. By nature, institutional investors are not first movers—they are almost always slower to adopt new technology, both because they are risk averse and they naturally move more slowly. They follow the lead of their constituents—and if their constituents aren’t paying attention to crypto, habit dictates that neither will they.
The hard truth is this: We have been deep in the conceptual weeds of blockchain for so long that we have lost sight of the execution needed to bring concepts like transparency, trust and stability—let alone digital currency itself—to life. Institutional investors remain skittish because no one has paved a clear, actionable path forward.
I believe that the path forward is fast mass adoption in a controlled setting. Once mainstream investors see everyday people using crypto in the real world, they may be more inclined to believe that crypto is here for the long haul and is therefore a safe and viable investment.
So, what does that path look like? In the long term, it means identifying and elevating the cryptocurrencies that offer the quickest path to widespread adoption. And this may come as a surprise, but the conduit for those cryptocurrencies just might be reputable companies solving real-world problems for large customer groups. More specifically, the solution might be blockchain economies built into the already-existing ecosystems of these large companies—ecosystems that already have a large, loyal brand following with a strong online presence (such as KODAK, which released the KODAKOne digital ledger to protect the ownership rights of photographers).
No. 2: Regulatory Development and Compliance
In an amorphous space that changes and evolves everyday, and with over 1,500 cryptocurrencies to choose from, mainstream investors that are not well-versed in crypto (that is, most of us) often lack the resources and know-how to make informed decisions. Nor do they feel confident enough in the space to expend their own resources on due diligence, guesswork, regulatory considerations and technological burdens.
Regulation will be a big part of solving these issues. The U.S. regulatory landscape is becoming clearer by the day—and the consensus is that you can’t raise money first and build a platform second. It’s always better to work with regulators than try to fight them. First, equity or convertible debt should be raised in a company to build out the platform. Once that platform is live and transacting with customers, lawyers can review and test it for compliance, determine whether or not it’s a security, and only then should a larger ICO be considered. Then, the funds raised can be used to market and develop the blockchain economy for the long term. This is not speculation. It’s building something to last.
Over the next 12 months, we will begin to see the regulatory landscape take shape—and we have great confidence in the U.S. regulatory model. Over the next two years, key barriers to institutional buy-ins will be solved, including clarity on exchange traded funds, custody and governance. But these are just first steps. Once the aforementioned puzzle pieces—mass crypto adoption using potentially the most transactable tokens in the world, full compliance of both ICOs and blockchain business models, along with end-to-end investment solutions—the sky will be the limit.
Bruce Elliott is president of ICOx Innovations, which helps established organizations grow their businesses through the use of blockchain technology and cryptocurrencies.