In last week’s ETF Think Tank research note, we covered the concept of a Bitcoin ETF. We noted that issuers have been working on the product for over five years, and still no US listed Bitcoin ETF has been launched. That said, over the five long years, much has been done to improve the infrastructure and transparency of the crypto currency marketplace and blockchain technology. This week we dive deeper into the crypto world and discuss the survival of Altcoins.
Sock Puppet Marketing
In the late 1990’s, many amazing internet applications were coming to light and trying to succeed. Perhaps the most notable rise and fall was Pets.com. From Wikipedia:
“Pets.com was a dot-com enterprise headquartered in San Francisco that sold pet supplies to retail customers. It began operations in November 1998 and liquidated in November 2000. A high-profile marketing campaign gave it a widely recognized public presence, including an appearance in the 1999 Macy’s Thanksgiving Day Parade and an advertisement in the 2000 Super Bowl. Its popular sock puppet advertising mascot was interviewed by People magazine and appeared on Good Morning America.
Although sales rose dramatically due to the attention, the company lost money on most of its sales through mismanagement. Its high public profile during its brief existence made it one of the more notable victims of the dot-com bubble in the 2000s.”
The Wikipedia excerpt above blames the failure on mismanagement, but we would argue that the ultimate demise of Pets.com was caused by bad timing. The first iteration of internet applications faced major real-world challenges. Despite the excitement of the experience, the infrastructure and logistics to support this business model were expensive or non-existent. Today, a company like Chewy.com is booming with a similar business model, but in a world with more internet users, better internet speed, seamless payment systems, online marketing companies and low-cost shipping and logistics.
Are Altcoins Bad Ideas?
There are over 2000 Altcoins, and most will not survive in their current form. However, many of their value propositions will be resurrected once the dominant blockchain infrastructure achieves critical mass. Utility tokens like STEEM and BAT make a lot of sense, and transfer the ownership of content and data to the participants in a decentralized protocol. Defi, Security tokens and NFTs represent other great ways to transfer secure transactions without verified third parties, but all of these concepts are like building store fronts on the moon. Before we can transact on the moon, we need a cheap, efficient network to get there. We believe a network like Bitcoin has the potential to get there, but until then most altcoins will look more like Pets.com than Chewy.com.
Perhaps Elon Musk can help…
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