It seems like everyone is pitching a new cryptocurrency “investment” these days.
Telegram raised more than $1.5 billion in an Initial Coin Offering (ICO) this year, and startups like Dragon, Filecoin and Tezos have all raised 9-figure sums this way.
Even as prices of bitcoin and other cryptocurrencies crashed early this year, investors still put some $6.6 billion in various ICOs in 2017 and have raised more than $7 billion so far in 2018 alone.
And then there’s block.one, which is currently putting up the largest ICO of all time, dwarfing all of the competition this year and even most recent IPOs. Per the Wall Street Journal:
“A start-up company based in the Cayman Islands is on track to raise more than $4 billion through a yearlong sale of digital tokens—the largest fundraising of its kind. What buyers of the tokens still don’t know: how the company, block.one, will use the bulk of the windfall from its so-called initial coin offering.
If the company ends up raising that much by the offering’s expected closing date, this coming Friday, it would be more than twice the size of the next largest coin offering— Telegram Group Inc. raised $1.7 billion—and would be larger than all but one or two of the world’s initial public offerings on stock exchanges so far in 2018.
That a little known startup could raise so much money without a concrete plan for it speaks to trends in the topsy-turvy world of cryptocurrencies and views of the future of the online world.”
If that sounds less like investing and more like gambling, that’s because it is. These coins are worth what they’re worth not because the underlying company has some grand plan to put the funds to use to drive new revenue, but because there is demand from others to get in early. No one is thinking about the true value of these things. That’s besides the point.
But valuations matter.
Valuations drive value, and value drives returns.
If investors are willing to bet billions on cryptocurrencies and alt coins like what block.one is working on, think about what that money could do if they instead invested it — even just some of it — into innovation. Into supporting entrepreneurs. The gains would be exponential, and they would benefit all of us.
We hear so much talk about 4% GDP growth and how important that goal is for the U.S. economy. But the fact is, startup companies are responsible for all net job creation in the last 50 years. Look it up. Entrepreneurs drive economic growth.
But we’re not supporting them like we need to. The rate of startup creation has been going down for decades, and there is still far less investment in entrepreneurship — whether its Silicon Valley tech, St. Louis agtech, Boston healthcare, or anywhere USA small business — than is needed for these companies to growth.
That’s what’s holding back GDP growth. It’s not that we aren’t investing, but that we’re investing in the wrong things.
We’re living in a world now where investors are more than happy to bet their money on the next shiny cryptocurrency and the promise of quick riches, but what about entrepreneurs? A bet on the U.S. entrepreneur is all but guaranteed to have a greater impact and do more good than whatever the latest ICO is promising.
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