Crypto: The Oxymoronic Asset Class
The first thing I ever did on the internet was book a one-way plane ticket from New York to Paris.
I didn't pay for the ticket — there was no way to pay for things on the internet at the time. But American Airlines assigned me a seat (first class!), I guess on the expectation I'd buy the ticket when I got to the airport, which is something people did back then — it was 1983.
I was 12 in 1983, so I had no intention of actually going to the airport. (It would have been a prohibitively long ride on my BMX.)
I'd like to say that makes me an internet pioneer. Except that the second thing I did on the internet was buy a book on Amazon about 15 years later. So, not really.
There wasn't much to do on the internet in the interim.
Not until Netscape invented the web browser in 1994 — once you could point and click your way through the World Wide Web — internet traffic exploded, rising 850% in 1996 alone.
Investor demand for internet-related stocks soon followed, and Wall Street was happy to oblige. The dotcom boom started in 1995 with the IPO of Netscape and ended in 2000 with the IPO of Pets.com — which filed for bankruptcy just 268 days later.
In between was a frenzy of IPOs, peaking with the listings theGlobe.com (+600% on its first day of trading in 1998) and VA Linux (+700% on its first day in 1999).
In total, the US stock market saw 5,724 IPOs in the 1990s.
That compares to less than 2,200 in each of the subsequent two decades.
The dropoff in listings was not due to a lack of demand: In dollar terms, the IPO market was actually much bigger in both the 2000s and 2010s than it was in the 1990s.
Instead, IPOs got smaller in number and bigger in size because companies were staying private longer.
There was not much venture capital or private equity money available in the 1990s, so companies had to sell shares to the public early: theGlobe.com was doing just $1.3 million of revenue when it IPO'd, for example.
These days, that type of company would be privately funded with a Series B round — unless it's a crypto protocol, in which case it would be funded with a token sale.
That makes today's altcoin market the spiritual successor of the 1990s dotcom boom — for better and worse.
(Mostly worse.)
Jumping the Gun
Consider that Amazon.com's market cap at its 1997 IPO — a large issue for the time — was $438 million.
In 2012, by contrast, Facebook IPO'd with a market cap of $104 billion.
Amazon IPO'd three years after it was founded. Facebook waited eight years.
For crypto projects, the time from founding to token listing is often months — or minutes.
On the one hand, early token listings democratize investing: Crypto may offer early access to the next Amazon.com in a way that the equities market no longer does.
On the other hand, crypto may not produce any Amazon.coms — and it will definitely produce plenty of theGlobe.coms.
(And even if it does produce Amazons, they won't be so easy to spot, per the Barron's cover above.)
Worse still, buying altcoins today feels like the equivalent of buying theGlobe.com after its 600% IPO pop in 1998.
There is little if any professional price discovery in crypto: New listings skip the IPO process, where companies find out what asset managers are willing to pay for their stock and begin immediately trading at the inflated prices that retail is willing to pay.
So you're getting access to investments that are these days only available to VC-type professionals (good, I guess), but you're paying retail prices for them (bad, for sure).
That makes crypto something like a publicly traded, private-market asset class, oxymoronic as that sounds.
This causes problems: Because price discovery is inefficient, enthusiastic early adopters (not to mention developers), who buy into projects they are excited about, often soon find themselves down 80% or 90% on their investment — which makes them understandably less excited about the project.
And even for those not directly involved, falling token prices create a narrative that crypto is not working.
It is working: Things are being built — it's just that many of those things look like they're not because the tokens were mispriced.
It's Still (too) Early
The internet analogy is inexact (and overused), but for investment purposes, I think it's instructive: We're not yet past the equivalent of the dotcom boom.
I don't think we've even had our Netscape moment as of yet — digital wallets are still far too treacherous for mainstream adoption.
The good news is that, on the internet timeline, we may not be much past 1983: We're only just starting to see what utility this new industry can build — for users, it's early.
The bad news is that this new industry lets us invest far sooner than any that came before it — for investors, it's probably too early.
Which means we've still got a lot of altcoin equivalents of theGlobe.com and Pets.com to look forward to.
And, with luck, maybe an Amazon or two.
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