The ICO craze is in full swing. Etherium goes from 30 cents to > $300. The Ten-X ICO and others raise millions in no time. The secondary market for it shoots up massively.
The two questions I ask in every bubble are:
Where is the money coming from?
How can I monitor that source of money to know when the money is going to stop coming?
My best guess for where the money is coming from in the ICO bubble is China. China is the home of all the big Bitcoin mines and has a cottage industry of schemes to exfiltrate money out of China and into anywhere else. The "money" is also coming out of Bitcoin to some extent and into other crypto currencies due to high transaction fees.
What Countries are using crypto currency?
If we look at bitcoin search trends for Bitcoin : We see the U.S is at number 10. And Ethereum, the smart contract cryptocurrency powering the newly hatched ICO world: We see that the U.S is way down the list at number 18. Google underreports China of course because it's largely unavailable in China, but it would be number 1. So Cryptocurrency being a global phenomenon has to be taken into account. According to one reddit user, they feel like a real first world citizen when spending bitcoin while they can't really spend their local currency very easily online. I have heard stories about expats in Argentina who rather than deal with the Argentinian banking system to open a bank account and pay other Argentinians, they just use Bitcoin instead. These small countries with unstable banking systems are VERY vulnerable to Gresham's law, once cryptocurrencies can do enough volume to support all those people moving out of their local fiat. What's worse is that they will have to deal with a globally integrated informal economy that is difficult for them to tax. The other strangeness is what happens when you have a lot of the savings of a country in crypto? How does something like the 2001 debt default in Argentina play out? What kind of things go on in a country like Venezuela, where the government may even lose the interest of its citizens, if they can somehow meet their daily needs with crypto instead of a hyper-inflated currency? What kind of things happen when someone from Nigeria can invest in an ICO happening in Singapore by just sending a few packets around and then get paid the same way? There's no practical legal framework to protect investors, so really it's just reputation holding the whole thing together. The upside is everyone is on an even playing field as far as access to "investments" is concerned.
Deflation and Credit Cycles?
When there is deflation and a credit cycle, how do banks seize assets and bank accounts? Now everyone has an offshore bank account. This will cause a weird disempowerment of the banking system. They won't be able to control inflation as easily because they won't be able to administer austerity. Right now this is a pretty small problem, but it could get much larger. I could see a day where, due to lack of credit during a downturn, people finance projects with BTC or ETH from ICOs administered by brokers who put up collateral on the blockchain. What is collateral in an irreversible transaction system anyway? I'm still trying to figure this all out.
Where is the money coming from?
How can I monitor that source of money to know when the money is going to stop coming?
My best guess for where the money is coming from in the ICO bubble is China. China is the home of all the big Bitcoin mines and has a cottage industry of schemes to exfiltrate money out of China and into anywhere else. The "money" is also coming out of Bitcoin to some extent and into other crypto currencies due to high transaction fees.
What Countries are using crypto currency?
If we look at bitcoin search trends for Bitcoin : We see the U.S is at number 10. And Ethereum, the smart contract cryptocurrency powering the newly hatched ICO world: We see that the U.S is way down the list at number 18. Google underreports China of course because it's largely unavailable in China, but it would be number 1. So Cryptocurrency being a global phenomenon has to be taken into account. According to one reddit user, they feel like a real first world citizen when spending bitcoin while they can't really spend their local currency very easily online. I have heard stories about expats in Argentina who rather than deal with the Argentinian banking system to open a bank account and pay other Argentinians, they just use Bitcoin instead. These small countries with unstable banking systems are VERY vulnerable to Gresham's law, once cryptocurrencies can do enough volume to support all those people moving out of their local fiat. What's worse is that they will have to deal with a globally integrated informal economy that is difficult for them to tax. The other strangeness is what happens when you have a lot of the savings of a country in crypto? How does something like the 2001 debt default in Argentina play out? What kind of things go on in a country like Venezuela, where the government may even lose the interest of its citizens, if they can somehow meet their daily needs with crypto instead of a hyper-inflated currency? What kind of things happen when someone from Nigeria can invest in an ICO happening in Singapore by just sending a few packets around and then get paid the same way? There's no practical legal framework to protect investors, so really it's just reputation holding the whole thing together. The upside is everyone is on an even playing field as far as access to "investments" is concerned.
Deflation and Credit Cycles?
When there is deflation and a credit cycle, how do banks seize assets and bank accounts? Now everyone has an offshore bank account. This will cause a weird disempowerment of the banking system. They won't be able to control inflation as easily because they won't be able to administer austerity. Right now this is a pretty small problem, but it could get much larger. I could see a day where, due to lack of credit during a downturn, people finance projects with BTC or ETH from ICOs administered by brokers who put up collateral on the blockchain. What is collateral in an irreversible transaction system anyway? I'm still trying to figure this all out.
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