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Timing in long term investments. Hype analysis matters

In recent reports, ICOSCORING team attempted to review current events and trends on the blockchain market. This understanding is quite useful for smart investments or, sometimes in avoiding them.


Some of the factors remained still undiscussed. One of them is timing. Timing in the investment decision-making process is considered to be as an assessment of the current moment to be whether appropriate or not. In some cases, this evaluation helps to put off potentially beneficial investment ideas.


We may outlook the value of timing in the areas of the blockchain investment:

1) short-term investments for speculation purposes

2) long-term investments in technologies


The first is widely discussed, and the info space is full of recommendations, visions and signals for profitable investments and exits. Hence, we see much more far-reaching to assess this moment on the market in the context of investment in the blockchain technology.


Blockchain still appears to be just among the other technologies widely discussed and analysed. For this reason, we must understand whether it is a good time for blockchain adoption, is the potential market ready to adopt blockchain and how much time it may take to pay off related investments in the tech stack behind the blockchain.


These questions are challenging for investors as the investment history has a long list of witnesses of poor timing when investing in technologies. Here two bad scenarios must be mentioned:


  1. Technologies with longer adoption on the market than expected — VR/AR, Intelligent Agents, Truth Verification
  2. Dead technologies — Emergent Computing, WiMAX, Mesh Networks


More concrete example is Apple Newton — device produced by Apple in 1993–1998. The technology behind used to be embryonic to drive large adoption and penetration.


Risk of the technology death is clear and discussed above. But how the delayed technology adoption may appear detrimental? In the context of finance this delay is quite obvious — the longer the period of positive cash flow generation the less valuable those cash flows turn to the moment of the initial decision-making. Longer payback periods leave investors with no cash for alternative investment opportunities and decrease the present value of investments made. Moreover, longer periods mean higher default risk for startups.


A good model for following technology stages is Hype Cycle annually published by Gartner Inc.


Pic. 1 — Garter Hype Cycle


According to the model, emerging technologies go through five stages.


1. Technology Trigger — Technology demonstrates first proofs-of-concept, and media activates. Here commercial applications are not proven.
2. Peak of Inflated Expectations — Peak of hype with lots of both success stories and failure ones.
3. Trough of Disillusionment — Sound failures of practical implementations and mass disappointment. Research&Development is moving on but with fewer media coverage and less interest from investors.
4. Slope of Enlightenment — Technology achieve practical implementation and business turns much more flexible and open in considering other applications.
5. Plateau of Productivity — Stable mainstream and wide adoption. The market understands the technology and its early scepticism has fade away.


The blockchain is obviously among other widely spoken technologies, so it could not avoid attention from Gartner researches as well.


Pic. 2 — Gartner Hype Cycle with different blockchain use-cases


This model includes 95% of cases that we have seen in ICOs before. ICOScoring agrees with the idea behind the model and uses this vision on assessing ICO projects.


As an example, we faced up to 30 projects in Insurance during 2017 and 2018. The industry itself may have interesting and successful cases of blockchain technology implementation. But in fact, the branch is not still ready for optimizing all relations with the blockchain, and we expect it is to be ready only in the coming 10 years. The same scenario is likely to be with Health Care applications (Life Science, according to Gartner).


Thus, it is not enough for an investor to evaluate the blockchain technology potential in a project and industry. It is also crucial to assess risks related to timing in order to avoid extending payback periods and to reduce the actual project’s valuation.


Although the market is full of blockchain projects with no blockchain required, it is still a good demonstration of blockchain was (and maybe still ‘is’) hyped. Being quite theoretical, the Gartner Hype Cycle model reassures that the hype fall is a normal state of affairs for technologies and it is only a signal for future market turning to be more pragmatic.


Assuming that the hype is a good measure for trends understanding in the technology development, we may find other ways to determine the hype around industries. As an example, if we find a segment with more financing and active deals, it is likely to be a signal of being hyped rather than being the most attractive investment.


Here Pitchbook appears as a representative instrument.


Here we may see on that Year-by-Year basis, that Healthcare industries are more financed by funds in spite of its complexity and relevant expertise needed.


For the blockchain industry the same methods may be applied but they need to exclude grey noise in the statistics available and to get rid of data from ICO aggregators, as 1) the general population of ICO projects appear to be rather a semi-scam 2) ICO statistics indicate only the supply side of possible allocations for investors rather than the desire to allocate the capital.


Today blockchain is receiving fewer media coverages and news topics are negative enough. But teams around the globe are still working on upgrading protocols and finding more efficient options for blockchain implementation.


That gives hope that the blockchain real uprising has not appeared yet and is still upcoming. Hype decay is a general event for technologies.

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