Wall Street and Main Street investors may be locked in a mania for bitcoin, but Indiegogo founder Slava Rubin believes it could all just be a passing phase.
Bitcoin prices have skyrocketed nearly 20-fold since the beginning of 2017, with other popular digital currencies such as Ethereum, Ripple and Litecoin following suit. All the hype around cryptocurrencies could just be a case of FOMO, or a fear of missing out on the rally, said Rubin, who served as Indiegogo's CEO until 2016.
"Sometimes the hype is more valuable than the reality," Rubin said in a phone interview. "Investors start to realize this is not nearly as futuristic and then all of a sudden they need to pull out."
That's why the popular crowdfunding platform is betting on digital currencies in a different way. Indiegogo, founded in 2007, made a name for itself as a website where startups and entrepreneurs could fund projects via online payments, but now the company has expanded into a totally new market: initial coin offerings (ICOs).
ICOs are a controversial fundraising mechanism in which startups create and sell their own digital currency to investors, which typically buy the tokens using Bitcoin, Ethereum and other cryptocurrencies. Bitcoin's meteoric rise has fueled growing excitement around ICOs, as startups are able to raise capital in a cheaper and more efficient way, albeit with little regulatory oversight.
Indiegogo in December launched a service that lets users participate in ICOs that are compliant with the Securities and Exchange Commission. The first startup to use the service, Fan Controlled Football League, was seeking to raise $5 million. Since then, hundreds of companies have approached Indiegogo about coin offerings, Rubin said.
TheStreet sat down with Rubin this week to talk about Indiegogo's new ICO service, where Bitcoin might be headed next and how it compares to the dot-com boom and bust. Below is a condensed version of the conversation, which has been lightly edited for length and clarity.
TheStreet: Why did Indiegogo decide to become a platform for initial coin offerings?
Rubin: Since we began offering equity fundraising in 2016, we've had blockchain companies approach us with ICOs. We see this is as a natural extension from crowdfunding. ICOs are very much on an island right now and it's very hard for startups to establish trust with funders and establish an audience. For funders, it's hard for them to determine if an ICO is legitimate. So we're able to do [those things] for both sides of the marketplace.
TheStreet: What has the demand for ICOs been like so far?
Rubin: Like Indiegogo, the actual offerings are quite diverse. We already have video game companies, hardware, software, marketplaces, movies. It completely varies, but it goes from health care to shipping to artificial intelligence-powered companies to autonomous vehicles to all kinds of interesting organizations looking to leverage the blockchain.
In regards to demand, it's been incredible how much interest there's been on both sides from entrepreneurs and funders. We have applications in the many hundreds.
TheStreet: You've said that you hope this will bring some legitimacy to ICOs. How so?
Rubin: The ICO market really became hot in 2017 and it did eventually eclipse the venture market in terms of capital raised. The challenge was that on the funder side, for people who want to participate, if you didn't know the startup personally, it was hard to know if they were legit or if you could trust them, and whether they were doing it in a way that's compliant with regulators. We're looking to create that bridge. We think that entrepreneurs and funders will benefit from having [everything] centralized and having liquidity in one place.
TheStreet: It was disclosed this week that billionaire investor Peter Thiel's venture capital firm, Founders Fund, has made a big bet on Bitcoin. What are your thoughts on that?
Rubin: [Founders Fund] is going to have to navigate their own risks, just like investing in any asset. I think that in 2017, [digital currencies] were all very new. I think what you're going to see in 2018 is that there will be more people comparing it to the days of trying to find gold.
TheStreet: What big cryptocurrency trends do you see in 2018?
Rubin: I think that in 2018 and 2019 you'll see a lot more companies that are supporting the infrastructure to support blockchain companies and ICOs. It's what I call pick-and-shovel companies, companies like Cisco Systems Inc. (CSCO) that are the pick-and-shovel for the internet. It's kind of like how Amazon.com Inc.'s (AMZN) Amazon Web Services supports a lot of internet companies in the cloud.
While people will still be enamored with currencies, I think you'll see a lot more blockchain applications take hold. I think it will help with the supply chain and with tracking inventory. We may also see a bit of blockchain in the sharing economy because it can track the identity and legitimacy of transactions. The applications will have coins associated with them, but I think the actual things that companies do will become the story, not just the coins themselves.
TheStreet: Do you think Bitcoin will be as volatile in 2018 as it was in 2017?
Rubin: We're kind of like in 1995. In 1995, the internet was this new technology that folks that were super geeky kind of understood what it was about, but the mainstream market didn't. In 1995, Netscape comes out and people say Netscape is the way to enter the internet. So Netscape gets massive hype and had an incredible IPO. Then it plummeted. In the course of five years, Netscape hits massive highs before being sold to AOL.
To me, Bitcoin and even other early coins are like Netscape, and the internet is like blockchain. I do believe blockchain is going to change the world, but there will be other ways to connect with it besides Bitcoin, just as there were other ways to connect with the internet besides Netscape. Netscape had a huge impact, but nothing compared to the internet.
I think Bitcoin will be super volatile. If it will be better or worse than Netscape, it's hard for me to know, but I think people will get slowly closer to understanding that the blockchain is like the internet. Then you'll have all these incredible applications created around it, innovations like Facebook Inc. (FB) and YouTube [were created around the internet].
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