A leading investment bank has predicted that up to 90 per cent of all cryptocurrencies could be wiped out in the next 12 months – but that initial coin offerings (ICOs) are here to stay.
In a report titled ‘Token Frenzy: The Fuel of the Blockchain’, GP Bullhound offered its view on blockchain technology, cryptocurrencies and the future of ICOs.
One of the bank’s key predictions is that digital currencies will experience a “heavy correction” of up to 90 per cent in the next 12 months and that “very few companies” will survive.
“While this correction will be critical to cutting through the hype, its lack of impact on financial institutions will create new phenomena that we have never seen in any previous bubble burst,” the report stated.
“Nonetheless, once this ‘crypto-winter’ passes, the growth dynamics for the precious few survivors will be unprecedented.”
Mark Norse, director of marketing and distribution at Blockchain Capital, told BusinessCloud there are 1,600 different currencies plus hundreds of ICOs with many “not addressing a market need”.
He said: “I can’t see a future for a large proportion so yes, 90 per cent could become nothing. They will either end up being absorbed by other similar currencies or just disappear.”
In the GP Bullhound report, director Sebastian Markowsky spoke in favour of the underlying blockchain technology, which he said has the potential to become “a catalyst for the most pivotal technological transformation”.
“The past year has seen a surge in popularity for blockchain technologies,” Markowsky said.
“At GP Bullhound, we believe the underlying technology fueling this surge has the potential to redefine almost every aspect of our everyday lives, to reshape global business practices and even to transform national political systems.”
The report goes on to say that ICOs have become an overnight phenomenon and has transformed the way start-ups can access capital.
A total of $4bn was raised by blockchain companies through ICOs in 2017, five times more than traditional VC funding and 47 times greater than the $85m raised through ICOs in 2016.
“This momentum appears to be continuing into 2018,” Markowsky said, but stressed that the bar for the average ICO is rising every day and increasingly, only leading projects with reputable teams and backers are succeeding.
GP Bullhound predicts that ICO funding is here to stay but that it will mature significantly and rapidly.
“No longer will companies be able to launch an ICO off the back of a whitepaper,” the report stated.
Norse says ICOs have a higher chance of failure and many of them won’t ever appear on cryptocurrency exchanges, meaning backers are unlikely to be able to retrieve their investment
“With an ICO you’re just speculating on the hope that it will rise in value in the future, some will, many won’t,” he said. “That’s why I won’t invest in 99 per cent of ICOs.
“It’s only a matter of time before serious institutional money arrives into the space. Almost every bank, fund, private equity and venture capitalist is looking at cryptos, driven by demand from their clients.”