Yet another shock has landed on the cryptoworld. Yesterday a new coin emerged called the IOTA. It opened at sixth position on the coinmarketcap, without any proof of anything. I have no idea how much people have initially paid for it in it's initial coin offering (ICO), but to me it seems like that kind of position is not warranted for a completely new coin without any proof of working.
This kind of incidents are extremely hazardous for the cryptocurrency world, why? Well just think of it, what will people do about the next promising ICO? Over invest in it. What will be the purpose? Quick profit. What will this lead to? Crash. When this happens a few times with currencies that reach the top 10 position, people who are not familiar with the cryptocurrency world will panic and get out. This will cause a massive drop in every cryptocurrency. Many new people will loose their money. This kind of situation has been observed multiple times with the stock market. Benjamin Graham observed this and wrote about it in his famous bestseller The Intelligent Investor, which is often referred to as THE book in investing. When people start buying initial stock offerings without giving a good look at the stats, that is when everything becomes unstable.
However, earlier I wrote a post about why you don't need to care about a cryptocurrency bubble, you can find it here:
My post explains that it might actually be a good thing that worthless coins will be eliminated and the strong will survive. This will eliminate the worthless ICOs bound to happen. I'd like to take this moment to point out that I actually have no idea if this new IOTA is good or not, they say that it has great new tech, etc. But seriously, do you just take the word of others and invest before you even see if it works or not? Especially in a market which is full of scams.
Why are ICOs a great opportunity for scams? Well, the person who invents them can say that they are inventing a new thing which will revolutionize everything and you have a chance to buy in on it. From where I come, we have a saying, "don't buy a pig in a bag", meaning that you should always first see that it is actually a pig you are buying! Now as explained before, this kind of examples of great ICOs will make people want to invest in upcoming ICOs, but unless you are absolutely sure you want to put your money into the pocket of a random person and trust them with it, you probably shouldn't participate in the upcoming ICOs even if they offer you the sky. Someone always looses if people pay too much. Also btw, ICOs offer a great opportunity for pyramid schemes, where new people make the old people richer, and eventually the newest members will be left holding the bag worth nothing and the original people are rich.