Whether you are dealing with emerging technology, a new business or idea — speculation will certainly be present and is one of the core reason that something could cross the chasm, becoming widely adopted and successful or a complete failure.
Take Tesla for example, the market cap for the company passed 51 billion and for a short period of time, passed GM as the most valuable auto maker in the country. While the company has an impressive leadership team, an impressive product and potentially stands to become one of the most disruptive companies, it still has only delivered 76,000 cars in 2016. To put that in perspective, GM delivered 10m cars. Further more, Tesla’s revenue in 2016 was $7B and GM was $166.4B.
“Tesla is valued on speculation and won’t deliver!” Yells the pessimist. Even Elon Musk, CEO of Tesla and of Space X has admitted that Tesla is overvalued, however, evaluations represents risk-adjusted future cash flow. Analysts (from a macroeconomic standpoint) have published both bullish and bearish outlooks on Tesla. Meaning, nobody knows yet what it’s truly worth. It’s rare to have such a confident, sagacious and outspoken CEO who seems to care very little for what critics think–a lot of investors and speculators alike, have no idea how to handle this.
The amount of speculation involved with Tesla and traditional business models pales in comparison to the blockchain space where speculation runs rampant.
There are very few working prototypes in the crypto space and even less working products. As of this writing, there are only 20(ish) companies that have a working prototype. The majority of the “companies”(I use this term lightly) consist of a fancy website, social media channels, some have a whitepaper and even less have a Github repository with original code.
That hasn’t stopped companies raising millions and in some cases, billions of dollars via their ICOs. Ask anyone how it’s possible to raise this kind of money and they’ll point to one thing — speculation.
The obvious question here is: what’s the impact of speculation on emerging industries?
Speculation is a distribution model for risk and a catalyst for early adoption. Speculators are sometimes defined as early adopters of new ideas and new technology. Speculation is the fuel for a lot of the early adopters where the upside could be enormous and, in some cases, could be the only reason why a product is able to cross the chasm. Those who are willing to speculate generally have the wherewithal the handle the additional risk and often times becomes the catalyst for innovation.
Elon’s master plan was to first build a very expensive roadster and market it to people who could afford it. In turn, those who could afford the really expensive electric car would pave the way for the Model S, a less expensive (but still expensive) electric sedan. Using the proceeds from the roadster and the Model S, Elon would then build the model E, a much more affordable electric vehicle. Speculation that Tesla would continue to innovate sold people on the ‘why’ of the company and in turn sold them on investing in Tesla.
Those early adopters, those speculators helped finance Tesla in it’s nascent stages. The same thing is happening in the crypto space. The difference between the two is, the majority of the ‘users’ in the crypto space are speculators and not users. Greed thinly veiled as early adoption have left some taken advantage, bamboozled and with a ‘bad-taste’ in their mouth.
Ripple Labs is a VC backed company that is focused on banking software using blockchain technology(it raised 96m). XRP is a cryptocurrency token that briefly took the #2 spot in terms of market capitalization is a perfect example of greed fueled speculation which resulted in a lot of people feeling betrayed. The reason is, XRP is also called Ripple but has no relation to the company Ripple and you do not need XRP to use the Ripple blockchain (unlike the relationship between ETH and Ethereum). The result was a market cap of being pumped up to 128b and then falling to 44b, all within 3 weeks.
Speculation is a decent litmus test for the viability of a new technology or a new industry. The underlying, prodigious technology of Ethereum and Bitcoin is incredibly exciting and could be a true disruptor of: financial markets, voting, healthcare and, potentially lead to more equality in regards to standard of living. That being said, the underlying technology can still be successful whether the coins are valued at $1 or $1000. Speculation is the only driving force behind any cryptocurrency evaluations right now. Don’t be fooled.
