The Blockchain technology is revolutionary. Yet investors are throwing millions at cryptocurrencies offering terrible value propositions, and despite the recent market drop on the back of the China ban of cryptocurrency exchanges, cryptocurrencies are still in bubble mode.
Prices may have risen too far too fast: the aggregated cryptocurrency market capitalization has gone from USD 18 billion to USD 135 billion between the start of 2017 and now, a 650% increase. Many valuations are outrageous; cryptocurrencies with no intrinsic value are currently worth hundreds of millions. Investors’ exuberance notwithstanding, the technology is groundbreaking, fundamentals are often excellent, and the hundreds of millions poured into strikingly poor investments should become a drop in the bucket once cryptocurrencies undergo mass adoption.
Therein lies a seeming contradiction. Investing in businesses with solid fundamentals would typically represent a good investment rather than a poor one. If businesses fundamentals are great, how can there be a problem? The explanation is simple. Investments in blockchain projects are not going through traditional channels (i.e. stocks, bonds, etc) but rather through a new channel: cryptocurrencies themselves; and cryptocurrencies often represent seriously flawed investment vehicles.