If something looks too good to be true, it most likely is

For quite a while I wanted to write something about Theranos, but so much has already been written about Theranos, that I wouldn't add much. Instead, I'll go a slightly different route: comparing what happened with Theranos to the crypto market.

But first a quick recap on Theranos, for those who do not know what I'm talking about. Theranos was a startup founded in 2003 by then-19-year-old entrepreneur Elizabeth Holmes. Like many founders in Silicon Valley she was a college (Stanford) drop-out and wanted to disrupt things. Unlike many founders in Silicon Valley, her company wasn't an IT one, but a health care one (which is a horse of a different colour). She wanted to create a blood test, that performs much more tests than current ones, is therefore easier to use and much cheaper. People would get their blood checked more often and thus be informed about potential diseases way earlier than nowadays. Through clever networking and being an overall attractive package (interesting idea, a lot of potential and a founder who was ought to be a female Steve Jobs (a notion, she actively promoted)), the startup was valued $9 billion in 2014. There was one big problem though: the company never delivered what it promised and even over a decade after the launch of the company, their machines were only able to perform very few tests and those were worse than regular blood tests.

The company was cult-like, where ex-employees were persecuted, if they talked about the problems Theranos was facing. These bullying tactics, helped to keep the company afloat for quite a while, but as soon as they released their products to the public, cracks in this facade started to appear. In 2015 John Carreyrou of The Wall Street Journal did some investigative research on the company and their product and published an article on how the company is basically fooling everybody. After this article, the company crumbled down rather quickly and a lot of investigations from officials followed.

Fake it until you make it, is a rather common phrase in Silicon Valley and sometimes this approach turned out to be fruitful (E.g. did you know that Netflix was actually founded in 1997 and started by sending DVDs via snail mail? Also, Uber's business model relies heavily on autonomous cars being common-place in the near future. But in those two cases, the companies are at least selling some service right now). However, for companies that rely heavily on IT, this can be just fine, but for a health care company, things look differently: if Netflix recommends you a film, you are not interested in, this is usually not a big deal, if Theranos gives you a wrong diagnosis, this is something completely different. I could go on and on, but if you are interested, check out this video below:

So, what's the connection between all of this with crypto? Well, with a field as young as crypto, there are quite a lot of projects, which are selling a vision more than anything else and a lot of people are buying into it (just think back of the ICO craze of 2017/early 2018). Bitconnect is probably the best example for that, but it is just one prominent example for the many, many shady or poorly planned businesses that come in such a young industry.

Elizabeth Holmes was not only ruthlessly shilling her company, but was also incredible good at doing so and managed to fool many seasoned investors like Rupert Murdoch, Betsy DeVos or the Walton family, just to name a few. You would think that people like these would do their due-diligence before investing a couple of million dollars into a startup, but you would be wrong. Once the hype-train takes off, FOMO is usually stronger than reason. That's again something that we saw back when the last parabolic bull-run in 2017/early 2018. It would be very interesting to see, how the gap between what those ICOs promised back then and how it actually turned out, looks like (since quite a lot of the ICOs had a roadmap until 2019/2020) and I might will dig into that at one point.

It was certainly an interesting period and it got a lot of people into crypto (like me for example), but at the same time I guess it also left a lot of people disillusioned of the whole crypto space and gave them a wrong impression of what it is all about. For the future, I don't see a new ICO craze of similar proportions around the corner (although I could be wrong of course), but the craze could take a different shape like Security Token Offerings (STO) or in the form of Decentralised Finance (De-Fi) products. Even though STOs are much more regulated than ICOs were back in the day and De-Fi is something slightly different, as soon as there is a new craze, the scammers won't be idle and think of new ways to rip off new and inexperienced people in the space.

So my advice is to stay critical, look for possible short comings and never ever put your money blindly somewhere. The possibility of a scam being successful is heavily reduced, when people do their due diligence and not buy into anything that promises the pie from the sky. As Theranos shows, it can also happen to seasoned investors, but please remember my words: if something looks too good to be true, it most likely is.