Ethereum Founder on ICOs: "We Are in a Bubble, A Lot of Projects Will Fail"

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When it comes to the cryptocurrency and blockchain worlds, few figures draw as much rapt attention as Vitalik Buterin. The founder of ethereum, the second-largest cryptocurrency by market capitalization and the revolutionary platform which has allowed for initial coin offerings (ICO) to dominate over the past year, commands a great deal of respect among industry followers, so much so that false reports of his death prompted major plunges in the digital currency marketplace. Now, Buterin has words of warning for investors in the ICO area: he suggests that ICOs are a bubble waiting to pop, and that the current trend of largescale token sales is not sustainable.

“We are in a Bubble”

Buterin remarked on the ICO craze during a trip to Israel in order to meet with local cryptocurrency and blockchain tech companies and investors. According to Finance Magnates, the ethereum founder indicated that “it would be a mistake to underestimate the value of ICOs or to say that they are a bad thing. ICOs are interesting because they enable monetization for open source projects…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.”

Buterin continued, “I indeed think that we are in a bubble because all the cryptocurrencies are rising and people have a feeling that they will always continue to rise. A lot of projects are raising more money than what they would be able to in the normal VC market, and sometimes there is no match between the necessity and usefulness of the project and its ability to raise money. Additionally, this market is still young and people still don’t know how to differentiate between projects that will exist in the long term and those that won’t.”

What if it Collapses?

If there is an ICO bubble, as Buterin suggests, what will happen when it collapses? Buterin puts it simply: “it is not clear how things will look in a year or two. In the end the market will need to cool down. A lot of projects will fail and people will lose money.”

So what is to be done in the meantime? Perhaps investors should be more cautious, Buterin suggests. He indicated that he does not participate in most ICOs because he believes that they “are done at too high valuations.” Approaching the ICO space with skepticism will help investors to ensure that they are not too fully invested in the area, should the ICO market collapse.

TheEthereumNews