With BTC and ETH being ~79% and ~92% down respectively as of 2nd Dec 2018, you can understand the comparison of the cryptocurrency bubble to previous ones. Many companies did not survive the dot com crash so for the holders of cryptocurrencies, the important question is “which cryptocurrencies will not survive the cryptocurrency recession or the long term?” This article aims to outline the criteria that can help in answering that.

Poor funding

During a multi-year recession, funding is needed to keep a business afloat for multiple years, especially where it has no actual product. If a cryptocurrency team raised money through the ICO to only last it for a year or two, or kept the raised amount in Ethereum (with prices as of early 2018), then probably that cryptocurrency will not survive. The price of ETH has dropped from its ATH of ~$1,389 to ~$117, so that would have significantly reduced the value of any unchanged ETH from the ICO.

Poor financial management and experience

A good accountant is useful to keep costs from spiralling out of control, identify cost savings and efficiencies, to model different financial scenarios and to guide the business through sound financial management and practice.

If a cryptocurrency team does not have strong financial and accounting experience, it probably will not be able to manage its costs well and budget appropriately during the difficult crypto crisis. They may not even know that they have become bankrupt, or may find out too late, leading to the cryptocurrency going extinct.

Paying large salaries to the team

If a cryptocurrency team is paying itself large salaries, much above the market average, then it will be eating away its funding. Unless the team cuts its salary, it can indicate that the team is not financially savvy or is just greedy. With the price of its own cryptocurrency having significantly fallen, and not enough revenue to survive through the recession, the cryptocurrency will probably not survive.

Poor marketing

To conduct an excellent marketing campaign, it probably needs to be sustained and involve a lot of money. With the drying up of funding and the falling of cryptocurrency prices, the cryptocurrency team will probably not invest enough in the marketing, which means that it will probably not earn enough revenue to help it survive through the recession.

Poor use case and insufficient demand

Many cryptocurrency teams went through an ICO just because they were greedy or thought their idea was good, without having robust research that demonstrated sufficient demand and profitability for the company in the long term. An idea may be good but if not enough revenue is generated, then the business will be loss making and eventually close.

Furthermore, based on the ICO price, the cryptocurrency company was valued way higher than what it actually would be valued at in the future, through actual usage and demand. Thus, a company which raised £10 million yet its likely potential long term profitability is only £100,000, will probably not be able to survive the recession or the long term.

Not meeting goals in time

Those cryptocurrency teams that have not met their targets and goals per the ICO roadmap or keep significantly changing their goals after the ICO, display their inability to manage projects and probably will not survive in the long term or the recession, where projects need to be managed tightly and delivered upon.

Focusing on other projects

If a cryptocurrency team is no longer devoting its full attention and resources to making its current cryptocurrency successful, but is proposing another cryptocurrency ICO, or working on another unrelated business, then it shows that the cryptocurrency team is not serious about its cryptocurrency and will probably not be able to survive.

Lack of regulatory compliance

If a cryptocurrency team is not taking regulatory compliance seriously, then the changing and complex regulatory situation can impose significant costs on the business or force its closure. There have already been some famous cases of cryptocurrency companies being taken to court by the regulatory authorities or given orders to desist.

Going forward

The cryptocurrency investors should ask for transparency from the cryptocurrency team in terms of their financial performance and hold them accountable for their roadmap per the ICO. This should include the annual financial reports and financial updates at a quarterly basis. They should also determine whether the finance person of the cryptocurrency team has the relevant qualifications and experience. The team should hire an appropriate person if they don’t.