Bitcoin Ventures: The hype cycle

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Just last week, Bitcoin celebrated its Independence Day—marking one year since the hash war of 2018 and a year since Bitcoin SV (BSV) was able to break free of the other technologies that forked away from the original Bitcoin protocols.  

There was some fanfare, but for the most part, there was an appreciation from the people and companies involved in the Bitcoin industry, that they can finally get to work. They can start building applications and companies using the real Bitcoin protocol. They can begin to fulfill the promises the original whitepaper laid out a decade ago. 

We won’t lament what could have been, but I want to take a moment to discuss the hype cycle. Every new industry is a victim of it. No matter the industry (so long as it’s worthwhile), follows the same hype cycle and Bitcoin is no different. 

Before you say, “but Bitcoin is so different, it’s truly immune to the patterns and cycles other industries enjoy,” let’s go back to 2001 when the hype machine started to pump up inventor Dean Kamen’s new mystery product. Before the big unveil, no less than Apple founder Steve Jobs was quoted saying the invention would be “as big as the PC.”  

The rise and fall—and rise again of Segway

In December 2001, the Segway PT was revealed with a promise to transform how people travelled. The hype behind the expensive personal travel vehicle was palpable; venture capitalists were lined up to throw their support behind Segway. 

The expectations never lived up to the hype as early investors realized the actualization of the idea was several years away and abandoned the project. 

In 2013, Roger Brown bought the company for just $9 million from the estate of then owner Jimi Heselden who died somewhat ironically, riding his Segway off a cliff. A paltry sum for a product that was going to reinvent human travel. 

The hype surrounding the original Segway subsided. Still, other companies, led by people who saw value in Kamen’s original idea of an electric personal vehicle supplanting cars for daily commuters, kept working. 

The original idea that led to the hype was realized almost 15 years later when Segway was sold again to Ninebot, who began selling sub $1,000 scooters. The sale reignited the hype cycle, this time with substance. 

In 2019, personal electric vehicles fill most major city streets. It took 18 years, but Kamen’s dream has been realized.  

Recognizing the hype cycle 

The hype cycle repeats itself across all industries and technologies; here are the steps so that you can recognize where an idea or industry is in this cycle before you decide to invest your money.  

Stage 1: Early Adopters and religious figures 

With the birth of a new idea, there are a few believers who recognize the value of the concept. They begin to invest and support the idea whichever way they can. Much like the “real fans” of that new indie band, they annoy their friends and feel a sense of entitlement to the idea. Some go so far as to adopt religious nicknames and seek to build a cult following based around the new idea.  

Stage 2: I think we got something here

The idea has legs, and soon, an industry begins to develop around it. The early adopters and investors see some growth. Some are starting to see profits. When it comes to new technology, this is where there is a distinct growth in cowboy hat clad “experts” who “know” better than the originator of the idea. A small industry of books for dummies and thoughtless thought leaders begin to emerge who start promoting substandard knockoffs of the original concept.  

Stage 3: Mom quit telling me, I already know

The hype cycle hits its peak in the third stage. The idea has gone beyond the hipsters and early adopters. It’s a full-blown phenomenon with regular people and the mainstream media buying into the hype. Everyone is absolutely sure the idea will change the world. They want in, driving the value of the industry through the roof. There’s no turning back now; we’re all going to be millionaires.  

Stage 4: The Bubble bursts 

To rephrase a cliché, “If a former child actor and an accused murderer on a pirate ship start giving investment tips, the bubble has reached its limit.” In the fourth stage, the people who bought the hype begin to understand it will take longer for the realization of the industry’s initial vision to match its perceived value. Investors can only be so patient. They don’t want their money tied up on empty promises. It’s at this moment there is a race to the exit.  

Stage 5: Oh, we’re still here 

In the fifth stage, companies that run their businesses smartly and understand the technology continue to build on the original idea. They are more committed to the original vision. Some of these companies are turning a profit. (Note: there are still remnants of stage three trying to reignite the boom.) Many of these people invested at the top and are unwilling to cut their losses. You can recognize them with their tired catchphrases on Twitter and with any movement in value or hint of good news is a sign that the next boom is coming. 

Stage 6: Patience is a virtue 

In stage six, the industry grows up. The vision for the future is bright. There are good companies that are turning a profit. Smart investors, now immune to the hype machine, take their time and separate the wheat from the chaff. They invest in companies that are built to scale, companies that stayed true to the original idea and some are even profitable. In the final stage of the hype cycle, the people burned by the bright lights of the hype acknowledge their past follies. They start letting go of their ideological commitments and return to the original idea that first caught their eye. 

All industries are subject to the hype cycle, with the knowledge of how to recognize those peaks and valleys will allow smart investors to better predict and better recognize the opportunities that offer true value.

For me, Bitcoin Independence Day wasn’t about hype. It acknowledges Bitcoin’s own Segway type moment, an idea that is changing the world but it has taken time to escape the hype cycle. It’s taken time for the imposters to fail, it’s taken time for people to understand the importance of scaling, the true value of utility and microtransaction fees.

Smart companies will succeed, investors who choose wisely will be profitable, and this time the hype will have substance. 

Interested in making your pitch? Learn from the people, like Agora’s Alan Borger, who pitched their projects to a panel of investors in Seoul for the first ever Bitcoin Association Pitch Day. Watch all Pitch Day videos on The BSV Pitch YouTube playlist.

https://www.youtube.com/watch?v=euLEhapOZII

Watch this space for more information concerning the next Pitch Day as part of CoinGeek Conference London this February or if you feel your business is ready for investment, feel free to send your business plan and pitch deck to [email protected].