Token Glut Report: Oversupply of Last Two Years Meets an Extended Bear Market

Token Glut Report: Oversupply of Last Two Years Meets an Extended Bear Market

TL;DR: Reuters is reporting an oversupply from nearly two years of non-stop initial coin offerings (ICOs) might have finally hit a snag. Encouraged by 2017’s unbridled optimism as prices rewarded virtually any project making a claim of new or different, ICOs took off as a form of less friction-filled fundraising for companies, especially startups. As the market cooled in early 2018, and then tanked during the remainder right up and to the present, there appear to be many more tokens than buyers. 

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Token Glut Two Years Years of Boom Seems to Have Met a Bust

Gertrude Chavez-Dreyfuss wrote, “Companies that issued tokens, or digital currencies, over the last two years through initial coin offerings (ICOs) may have to sell more of these assets to finance their operations. There’s just one problem: There are very few takers.”

Token Glut Report: Oversupply of Last Two Years Meets an Extended Bear Market
Graphic: Token Glut – Reuters, Messari

Billions were raised through ICOs in 2017, and then 2018’s extended bear market chipped away at those gains, especially among projects hoping for lucrative future returns. It’s a double-whammy of sorts. Companies sold tokens to eventually cash-in on them, but then prices tanked and now potential buyers have the economic advantage.

It’s simple economic law: when too many goods are chased to by too few buyers, prices tend to fall in an effort to lure the reluctant into believing they’re getting a discount, if they buy at all. And something like that appears to be happening among cryptocurrencies.

Dead Coins

“A global regulatory crackdown led by the U.S. Securities and Exchange Commission,” Chavez-Dreyfuss wrote for Reuters, “has created fear about greater oversight and acceptance of the currencies for payments among the companies issuing the tokens and the investors that bought them, taking the wind out of the once red-hot digital assets. Data from Dead Coins, which tracks crypto startups, showed that around 1,000 of these companies either failed in the last year or their projects have now been abandoned.”

Token Glut Report: Oversupply of Last Two Years Meets an Extended Bear Market

Many of the ICOs gave-in to inflation schedules, calendars by which more supply would be released, thereby, some insisted, artificially increasing a token’s initial value. Like the real estate bubble of 2008, token projects believed prices of their project would have mooned by now, and so a scheduled release would’ve been just that much sweeter. It hasn’t worked out that way.

The report relied heavily on Messari research, which “showed that 71 coins of the more than 400 tokens on its database have issued less than 50 percent of their targeted total supply, which means there is a flood of these assets that could be sold to the market or distributed in some shape or form.” The problem compounds as contracts will inevitably come to call, meaning more supply must be given to holders … who might be tempted to get out while they can, further flooding an already saturated market, extending the longest bear run in ten years.

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