When will it pop?
I barely made it past the turnstiles at last week’s NYU Token Summit, a day devoted to those weird new digital assets that are all the rage in financial tech right now. (I know; I’ve been covering a number of similarly themed events lately.)
It struck me, as I watched dozens of ticket holders get turned away from the oversubscribed event, that there was perhaps no better symbol of the speculative mania we’ve been witnessing in recent weeks than the sight of 70 would-be attendees sadly zip up their rain jackets, reverse course, and trudge home from an event that, not so long ago, would have been attended by few people. (William Mougayar, the summit’s organizer and a partner at the Toronto-based investment firm Virtual Capital Ventures, told me he would be forced to refund around $20,000.)
In case you’re just tuning in, tokens are a kind of digital currency built on blockchains, the innovative accounting technology that first made Bitcoin possible. Nowadays, most tokens are minted on Ethereum, a rival network that aims to create a virtual computer distributed across a swarm of volunteer machines. Lately entrepreneurs have been using Ethereum to coin their own digital currencies and sell them directly to the public. So far the tactic has been working: The market capitalization for all cryptocurrencies exceeds $90 billion today. Bitcoin accounts for less than half of that sum.
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Depending on your perspective, tokens either herald the next wave of the Internet, or conceal a scam-riddled tulip garden. Advocates like Chris Dixon, the investor at Andreessen Horowitz, have described the technology behind tokens as “a breakthrough in open network design.” Critics, like Izabella Kaminska, a writer at the Financial Times, have disparaged it as a “Ponzi machine.” Probably both are right.
One thing both sides can agree on: We’re in the midst of a cryptobubble. Speculation, not utility, is driving an outrageous purchasing frenzy. This was made clear when Mougayar, one of the Token Summit’s hosts, polled the crowd on how many people own tokens. Essentially everyone—more than 500 people—raised a hand. How many people actually use them for something other than trading? About 10 hands went up.
Nevertheless, the most ardent believers take a longer term view. As Olaf Carlson-Wee, founder of the hedge fund Polychain Capital and a bull in the market, told me during a cocktail hour after the event, “It’s only a bubble if it crashes.”