Cryptocurrencies as a Lemon Market
Article: https://medium.com/@avtarsehra/icos-and-economics-of-lemon-markets-96638e86b3b2
Cryptocurrencies are one of the hottest investments on the market right now. Just a year ago, Bitcoin was around $700. Now it’s almost $10,000, and investors are racing to find the next cryptocurrency that they believe will make them rich overnight. However, according to the article, the cryptocurrency market has necessary conditions for a lemon market, so investors need to be wary of what they’re investing in and recognize the potential outcomes for the currency value.
There are several characteristics about the cryptocurrency market right now that the author argues makes it susceptible to being a lemon market. In terms of value, the currencies are not well defined because there is a lack of models and information about cryptocurrency technology and how each variation of the technology works. Additionally, it benefits companies to pass off low-quality currencies as high-quality because the issuing companies themselves are not held responsible for the currency and it is not expensive or complex to do and Initial Coin Offering (ICO). There are also no regulations on ICOs and the average cryptocurrency project is of low quality.
I found the discussion fascinating and very relevant – cryptocurrency is definitely a controversial topic. The anonymity it provides also creates a safe-haven for illegal activity, which is concerning, and currencies are still fairly susceptible to hacks. Despite this, I believe that cryptocurrency makes sense going forward as a decentralized way to handle money, though it has a long way to go before it gets there.