Vitalik Buterin: There Is an ICO Bubble Waiting to Pop

With the sheer amount of cryptocurrency ICOs in the ecosystem, it is obvious that many of them will not be nearly as successful as they claim. While this new way of raising money is appealing, it will not automatically turn an idea into a successful product or service. Ethereum co-founder Vitalik Buterin recently stated that the ICO market is in a major bubble. He also claimed most projects will fail in the end. That is not a positive outlook, although it only serves to confirm what level-headed individuals knew several months ago.

Most ICO Projects Will Fail Miserably

As is the case with any nascent industry, the chances of success and failure are not evenly balanced by any means. Just because projects and teams raise enough money to work on an idea does not mean they will be able to create a viable product or service. Even if they get that far, the venture may eventually fail and investors will still lose their money in the end. This is not a popular opinion when it comes to ICOs, but it is the unfortunate truth we will all have to deal with sooner or later.

In the world of cryptocurrency ICOs, there is a clear and present bubble forming. Dozens of new projects launch every single week, all of which cater to investors with supposedly groundbreaking ideas. One thing that nearly nine in ten projects have in common is that they have yet to provide a demo of a working product. Just writing up a whitepaper has absolutely no value, even though it provides a more technical explanation of what the team hopes to achieve in the future.

Ethereum co-founder Vitalik Buterin recently stated how the ICO market is in a bubble. That statement caught a lot of people by surprise, although it is good to see such respected individuals say what most of us already knew. His word of advice to investors centered around how “the current trend of large token sales is not sustainable.” It is certainly true there are hundreds of new ICO tokens every month, most of which are funded due to hype and excitement rather than any technological value.

Things have gotten a bit out of hand when it comes to cryptocurrency ICOs. These token sales have caused issues for the Ethereum network on more than one occasion as well. Things need to be contained before things go from bad to worse. At the same time, Buterin states how no one should underestimate the value of ICOs as a whole. There will be successful projects in this industry, although they will be a significant minority compared to the concepts that will eventually fail.

Buterin summarized the ICO bubble as follows:

“What we are seeing lately is that people are taking this idea too far, and there are projects that issue a coin not because it makes sense to issue a coin but because they have a product they can sell and raise money. Without a coin there is no business model. This creates the imbalance of incentives in the community at the moment.”

Assuming the ICO market collapses entirely – partially thanks to China’s regulatory measures – things could play out in many different ways. There will be a period during which the ICO market needs to cool down. People will lose good money if they invest in the wrong projects. It is up to investors to conduct their due diligence and not just invest in everything that has the ICO tag on its back. Some projects are also valued way too high, which only creates more expectations and market pressure. It is an unsustainable model in its current form.

  • Mbekos

    This was expected when Vitalik and CO created an ERC20 system that geared towards ICOs. However, let’s not throw a baby together with the water. Some of the companies are good and will prosper. When a new consumer tech is coming it always creates a bubble. Google, FB, Akamai, yahoo, etc. came out fine. If you compare this to dot com bubble we are still in 1990s.
    China will come up with their regulatory regime, they put this on pause. Besides, China is 20% of the world market and chinese money make way to SK, Japan and other exchanges.

  • John

    Newcomers to crypto should be investing in ICO’s very sparingly if at all. Investment capital would more wisely be focused on established projects that already have found traction in the industry and the market.

    • Alex

      This is old, but this single piece of advice pretty much sums it up.

      Cryptocurrency is already a very high-risk investment. ICOs are even more risky – probably the most risky group of investments you can make today that are not total scams (although many ICOs are scams).