ICO

ICOs in 2018 – Still Worth It?

Over the last few years, ICOs have taken the world by storm with a record-breaking $13.6 billion raised in 2018 alone.

The untapped resource of eager, non-accredited investors (AKA regular people interested in investing without the $1 million required to get accredited and play in the big leagues) proved to be incredibly lucrative and demonstrated that people all over the world are interested in investing but simply haven’t had access to that world.

That all changed when ICOs came to power – unregulated ICOs dealing in money not officially recognized as legal tender selling promises of returns on products that were often just barely in the concept stage.

It was an incredible time, showcasing the buying power of the public as well as wealthier investors.

It was also, of course, a recipe for disaster.

ICO teams played fast and loose with what little rules there were, and while there were many genuinely great projects that delivered and enriched investors at the same time, the majority of them were failures, and worse, at least 1 in 5 of them were straight up scams with no intention of delivering a product.

That brought the SEC and other government regulators along, kickstarting a wave of investigations trying to determine instances of fraud and selling unlicensed securities, the latter of which something even investors could get in trouble for participating in.

So where does that leave the ICO space now?

ICOs Today

It may surprise you to learn that recent research from Bitmex shows that ICOs have already sold almost as much Ethereum as they raised. Bitmex worked with TokenAnalyst to track the Ethereum balances of ICO projects over time, taking into account the amount of Ethereum raised and the US value of the gains and losses for each project over time due to the fluctuation in the market price of Ethereum.

“We conclude that rather than suffering because of the recent fall in the value of Ethereum, at the macro level, the projects appear to have already sold almost as much Ethereum as they raised (in US$ terms). Of the Ethereum still held by the projects, even at the current c$230 price, projects are still sitting on unrealised gains, rather than losses.”

The company believes that in the ICO space there is $93 million in unrealized gains even now in this bear market that has seen the price of Ethereum plummet 85% from its ATH at the end of 2017, and states that despite appearances, ICOs are technically sitting at a net (unrealized) profit.

Of course, actually realizing that profit would tank the price, right? Here’s what Bitmex has to say about that.

“The 3.8m Ethereum still on the balance sheets of these projects may not have that much of an impact on the Ethereum price, as it represents a reasonably small proportion of the 102 million supply of Ethereum. At the same time, on a macro level, the projects may be feeling reasonably confident rather than needing to panic sell.”

It’s surprising to hear, but in that sense ICOs were actually a roaring success despite the unwanted government attention and the hordes of scammers trying to get in on the action.

Many people certainly made a fortune, and the power of crowdfunding has perhaps never been more strongly demonstrated in human history – quite a legacy for something viewed these days with a measure of disdain.

The Problem With ICOs

Of course, the fact remains that ICOs didn’t work out quite as many people expected them to, a point that is summed up all too well by head analyst at The Block Crypto, Larry Cermack.

70% of tokens are now valued at less than what was raised during the ICO stage – ouch. The bear market has certainly hit crypto hard, but that’s not the only point Larry is making.

SEC classification of many ICO tokens as securities has been huge, and while that axe has yet to fully swing down on the heads of investors and fundraisers, the pressure is being felt by all. Immediately, even the statement that most ICOs are likely selling securities cripples the new fundraising technique in terms of its ability to challenge VC funding.

The SEC has the power to retroactively decide that an ICO was selling securities back in 2016, for example, and then fine and potentially even imprison not only the ICO team but the investors as well. Such a model has doomed many ICO projects which had little to offer other than the promise of high returns, although Bitcoin’s commodity status leaves it safe from harm while Ethereum is also exempt from security status due to the genuine utility of the token beyond representing a share in the success of the Ethereum platform.

Here’s another fun fact from Larry – while 2018 has been a record-breaking year for ICOs, ICO fundraising efforts in Q4 have been absolutely dismal, reaching yearly lows in August and sinking lower still in September.

He notes a trend in the ICO vs VC struggle, with dominance shifting back to VC funding as investors and companies shy away from the ICO model.

“Diar found that while projects are now more reluctant to raise capital through ICOs, they have turned back to VC. In just the three quarters of 2018, blockchain and crypto companies have raised nearly $3.9 billion through traditional VC. On track to raise more than $5 billion.”

That’s 280% more than last year, if anyone was wondering.

The largest VC investor in blockchain and crypto this year was Barry Silbert’s Digital Currency Group which made 115 investments into various projects, more than twice as many as the next on the list which is Blockchain Capital.

ICOs may be on the decline – but an emerging hybrid solution may be able to continue to allow regular people to get in on the securities market without breaking regulations

The New Way To Crowdfund Crypto

Initial Security Offerings, or ISOs, may be the answer to the regulatory (and corresponding fraud) problems with ICOs. A regulated cryto-crowdfunding vehicle that admits it’s selling securities, complies with regulators, and then sells tokenized securities to the masses. This allows investors to buy token shares in securities like shares and bonds without needing to be accredited and without needing to make a huge mininum investment.

This model could still challenge VC fundraising for the everyday investor – so keep an eye out for it!

Crypto is comin!

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UAE regulators to allow ICOs to boost capital markets for local companies

The United Arab Emirates (U.A.E) has announced plans of permitting Initial Coin Offerings (ICOs) as a method of raising capital for domestic companies. The country is looking to put up a legislative framework to be introduced in 2019. The new rules will open an avenue for local corporations to raise capital through crypto token sales. This will be an alternative to the traditional Initial Public Offers (IPOs) according to a news report published on Monday by Reuters.

Dampened IPO activity in U.A.E

While announcing the move, head of U.A.E’s securities watchdog Obaid Saif Al Zaabi alluded to a dampened environment for IPOs in the country. He indicated that a double-whammy of low oil prices and lackluster equities markets in recent years have decreased IPO performance in U.A.E as well as in the neighboring nations. One of the ways of dealing with this situation is by boosting the number of IPOs by allowing family owners to sell up to 100 percent of firms under their control. This will be done by drawing up a new law which measure is currently awaiting approval from the Prime Minister’s office.

Draft rules

The nation’s regulator, in conjunction with advisers from outside the country, stock markets in Abu Dhabi and Dubai to prepare trading platforms for the new digital assets. The laws are intended to provide a legal basis for ICOs which are currently unavailable. Once passed, the nation will become among the first countries in the world to establish a regulatory framework for the blockchain funding method.

Other Jurisprudential approaches to ICOs

Nations have moved in to legislate frameworks for cryptocurrency and blockchain technology so as to avoid missing out. Malta, for instance recently passed several bills to provide a legal basis for ICOs. It hopes to become a ‘Blockchain island’. Its Prime Minister recently addressed the United Nations on the subject. He said that cryptocurrency is the inevitable future of money to the world. Another case in point is Bermuda who are hoping to attract more businesses to the island by providing enabling laws that would allow ICOs under certain conditions. Bermuda has also put in place a standing task force geared towards boosting cryptocurrency commerce.

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Are ICOs Over-Promising and Under-Delivering?

ICO Statistics

2017 was a breakout year for cryptocurrencies. The price hike of popular coins aside, the sector attracted an influx of new investors. According to data from ICOwatchlist.com, a total of $2.3 bln was raised in the year from various ICO crowdfunding campaigns.

Of the project’s funded, FileCoin tops the list, successfully raising a staggering $522 mln. That’s a significant amount of capital, and it reflects investor confidence in the market.

Fast forward to 2018 and $6.7 bln has been raised from crowdfunding efforts in 2018. Telegram has attracted the most funding with $1.7 billion from their ICO pre-sale. However, they canceled their much-hyped sale back in May to the dismay of public investors. Telegram didn’t specify a reason for canceling their ICO. Speculation, though, suggests that stricter regulations may have played a major role in influencing their decision.

Telegram is not alone in pulling out of its ICO. Here are a handful of other coin offerings that went bust in the midst of their fundraising.

A Sneak-Peek at Some ICO failures

Slot N Slot

Slot N Slot wasn’t a scam, but it made our list of failed ICOs for its inability to continue with development. The project was meant to provide an extremely low-cost autonomous gambling platform accessible to anyone in the world. It was going to use Ethereum to provide its services.

SlotNSlot ICO

The team’s idea wasn’t necessarily original. They did, however, put effort into the ICO and producing a playable beta version. During the design and development stages of the platform, developers faced a host of obstacles and difficulties. Upon this realization, they issued a press release indicating that they had failed and were altogether abandoning the project.

SlotNSlot ICO cancelled

OneCoin

OneCoin was another huge ICO flop that many experts considered to be an international Ponzi scheme from the get-go. It had a website full of technical problems and spelling errors. They also lacked a working prototype, which is essential for an ICO project. OneCoin also accepted funding in fiat currency, unlike a majority of ICOs that used Bitcoin or Ether to raise capital. Several governments had already issued warnings to their citizens about OneCoin and the fact that it could be a possible scam. In fact, the Italian Government suspended OneCoin operations in its country.

OneCoin ICO

Droplex

Droplex initially masqueraded as a legit ICO by impersonating another company. Apparently, Droplex’s whitepaper was a word for word copy of Quantum Resistant Ledger’s own. Unfortunately, a few unsuspecting investors fell for the trap and Droplex scammed roughly $25,000 out of them. Investors who were familiar with QRL raised red flags and warned other investors, so the damage was thankfully minimal.

Droplex ICO

The Issue

Previously, we looked at why so many ICOs are failing. Apart from technological issues, regional disparities, and bad project ideas, we also found out that a majority of ICOs don’t have a functional prototype for what they intend to build in the long-run. Others are even completely void of a roadmap. Some ICOs also spend a considerable amount of time perfecting their whitepapers, websites, and marketing campaigns. This, however, doesn’t justify the outrageous amounts of capital raised in initial coin offerings.

It’s up to innovators to go a step further to tell their investors the truth about their technology and what it can do to revolutionize an industry, not what they hope it might achieve someday. Giving investors the cold hard truth may be a bitter pill for some to swallow, but it will help to keep people from investing in projects that may fail.

Also, most investors nowadays don’t research projects well enough, and they end up investing in them just because others are doing so. Most ICO investors judge ICO projects based on how high the value of the token will go. An increase in token value simultaneously signals an ICO’s success which, in turn, attracts more investors.

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Conclusion

Some ICOs will truly create lasting change in the world with their innovative ideas. However, chances are, most won’t fulfill their promises or expectations. Only the most promising and innovative projects will remain. The rest will most likely fade out. Therefore, it’s crucial for investors to differentiate between shrewd and misleading marketing efforts and authentic product development. Establishing a clear difference between the two will help investors choose those ICOs guaranteed to succeed.

originally posted on coincentral.com

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What is an ICO (and how do I know when it’s a good one?!)

Putting money into cryptocurrency projects is a new, exciting, and quite frankly scary method of investing.

Don’t get me wrong, I think the implications of crowdfunding are huge – while before now only accredited investors with a minimum of $1 million in the bank were the only people legally allowed to partake in venture capital funding, tokenized projects allow just about anyone to invest in just about anything. It’s pretty great.

Of course, it comes at a cost. A Wall Street Journal report found that 1 in 5 ICOs were straight up scams, and that’s not to mention the ones that simply don’t have a valid business plan. Most ICOs are going to fail, let’s be real – so how do you know if you’re making a good investment or not?

The answer is due diligence and information, two things that any VC capital firm or accredited investor is very careful about. Of course, the space has been plagued by scams for the exact reason that the general public are less inclined to pursue those things, with a lot of over-eager people vulnerable to predatory marketing tactics aimed at screwing you over and leaving you broke and untrusting of the crypto market.

ICOs explained

ICO stands for Initial Coin Offering. Essentially a new project can seek funding from international investors in the form of cryptocurrency. In return, users typically receive the crypto-tokens attached to the project. The value of the tokens is, broadly speaking, related to the value of the project overall.

Sounds a lot like securities? In some cases it is, leading to regulatory problems and concerns that authorities like the SEC in America might be able to legally shut a lot of crypto projects down.

The saving grace is the definition of most ICO tokens as “utility tokens”, not “security tokens”. A security is a tradeable asset like stocks or bonds. Stocks and bonds represent the value of the underlying asset – an Apple stock is worth a direct portion of the value of the Apple company, plain and simple. While arguably a loophole, cryptocurrency tokens are aimed at being utility tokens – the token doesn’t represent the value of the project directly, but acts as a coupon for services provided by the project.

For example, Ether tokens (which users bought at a discount rate during the Ethereum ICO) allow people to pay the “gas” prices on the Ethereum blockchain, meaning the tokens are used to pay the costs incurred by computers running complex processes such as queueing and executing the commands in smart contracts. The token isn’t just an Ethereum stock, you actually need Ether tokens to operate the platform, reclassifying the tokens in legal terms to safer waters.

So, typically users will send cryptocurrency (often Bitcoin or Ether) to a project and receive a discounted amount of new tokens in return. The project probably converts the cryptocurrency received into fiat currency, and if you’ve made a good investment, they’ll use the funds they raised to develop their project into something that will generate profit, and when the token you’ve bought becomes listed on major exchanges and is a necessary tool used to operate the new project technology, demand will increase and drive up the price, offering you a good ROI.

Or, you know, they’ll take your money and , to let you know that you’ve been truly screwed. That’s called an “exit-scam” (taking the money – not sure what the penis thing is usually called), and they can be avoided by doing your due diligence and having an awareness of what to look for in a good ICO.

Features of a good ICO

Without any further ado, let’s get to grips with exactly what you’re looking for in a good ICO. Before we start, it’s important to remember that community hype and “Fear of Missing Out” or FOMO are two of the main causes of people jumping in to an ICO with their eyes closed. The crypto-community is full of paid shills (people covertly hired to market a project by pretending to be an enthusiastic community member). Shills will flood message boards, and even have conversations with each other for the benefit of others, with one shill being initially skeptical only to be “convinced” by another.

Between forum shilling, fake news stories, and pump and dumps designed to manipulate price and then crash it when enough people have bought in, there’s a lot to be wary of within the crypto community. Don’t trust anyone telling you to buy into a project, just look into it yourself and do your homework. Otherwise you will get scammed, and it will suck.

1) The project has a use case

What do I mean by use case? I mean the project is actually a good idea, and proposes to do something useful that makes sense. This is probably the aspect of due diligence that is most open to interpretation, and it’s best to combine your thoughts on the use case with the other aspects of due diligence, but if a project doesn’t seem like a necessary invention or if it’s simply too complicated for you to understand, pass. There are so many ICOs out there, it’s worth waiting until you’ve found something you’re sure people will actually want to be involved with.

Good use case example: Unibright
Unibright’s ICO is now closed (don’t want anyone to think I’m shilling in my anti-shilling article!), and I personally didin’t invest in it. I wasn’t 100% sure if it was going to be a good investment, but I was sure that the project use case is solid, and that was providing templates for creating smart contracts without having to hire a developer. That’s a smart move for business integration (blockchain devs are expensive), and while it might be a bit ahead of its time as of yet, I think it’s a good use case.

Bad use case example: BitCar
This is just my personal opinion, but tokenizing luxury cars on the blockchain just doesn’t seem like a good, useful idea to me. Regular cars depreciate in value, and while luxury cars can be maintained in such a way that they become more valuable, the process of a company physically buying fancy cars and storing them somewhere so they can sell tokens that represent the value of the car without being classed as a security so that people can own part of each car and hopefully earn money just seems… dumb. Frankly it also seems to be inspired by the lambo meme culture to an extent. Anything convoluted or seeking to capitalize on crypto memes is fun on the surface but not necessarily going to be a good move as an investment – remember, in this case you’re buying tokens, not cars. Speaking of which…

2) The token has a purpose beyond fundraising and a low supply

ICOs are a booming trend right now, with projects suddenly freed from the strict regulations around securities and suddenly free to raise millions of dollars in the almost entirely unregulated ICO space. That’s great – for the projects. It’s obvious why a project would want you to buy their token, but why would you want to buy it? What does it do? It’s crucial that the token has a use case beyond simply making enough money for the team to develop their project. Sure, the funding could help to create a valuable project, but you could be buying into the most valuable technology in the world – it won’t make you your money back unless the token is inseperable from the project.

You want to look for projects that hinge on the value of the token. You’ve heard of whitepapers, the investment documents providing the details on the ICO. Don’t skim the token section – if the purpose of the token is skimmed over or vaguely phrased in the description, odds are it doesn’t really do anything, meaning no-one will buy it, meaning it won’t increase in value after the ICO is over.

Beyond that, it’s good to be aware of the effect that the total supply has on the price. ICOs often release hundreds of billions of tokens in their ICO – the more, the merrier, right? Not really – take Bitcoin, for example. The total supply is 21 million, which is one of the factors that contributed to the price increasing so much. Supply and demand is key here – there are comparatively few tokens, so if people do want them, they becomes rare and therefore expensive. If you’re interested in a project, check the total token supply and compare it to some other projects with valuable tokens. You can do that on coinmarketcap.com or livecoinwatch.com.

3) The project has a good team

This is an area that I see people skimming over sometimes, but it’s absolutely crucial to the success of the project. I’ll keep this short: Check the project description and find out what they’re trying to do. Tokenising real estate? You’re looking for real estate developers with years of experience. Creating a cryptocurrency video game platform? You need all-star game developers on the team. Ask yourself, do the team members have a lot of experience in that area? Like expert levels? If the answer is no, move on.

4) The project has a good website and whitepaper

This is the part that often puts off potential investors. And by that I don’t mean “puts them off from investing”, I mean “people are put off by reading long documents and will just randomly gamble their money away regardless.”

Don’t! Just read the damn thing. Break it into smaller sections if you like, and take some notes. Go over everything on the checklist. You’re looking for a well-written white paper that doesn’t use flashy marketing language.

Note: NEVER invest in something that guarantees returns. That’s a scam, every time. 

The website and whitepaper should have no errors and should look like some time and money was spent on each. The whitepaper should leave no question regarding team, token, or project unanswered. Don’t skip that part – it’s important.

5) The project needs a blockchain

Yeah. Sometimes it just doesn’t.

Don’t get me wrong, not all ICOs are crypto projects, but the vast majority at the moment are, and they run on blockchain technology. Why? What can blockchain do for the project that normal IT can’t? I recommend joining the telegram group of an ICO (usually found on their website) and asking them exactly that. Too many projects are jumping on the ICO bandwagon as a way of making easy money, and a lot of tech projects are being launched that have no business being a blockchain project.

Reminder: a blockchain is a ledger that creates records that cannot be altered. Generally it requires a comparitavely huge amount of storage space to keep the ever-growing amount of data. It’s great for tracking transactions and supply chains of goods, or fighting censorship – it’s not great for centralized projects that require a lot of data storage, for example.

The jury is still out on blockchain even among worldwide adoption, so to say that a project doesn’t necessarily need a blockchain doesn’t mean it won’t make a good investment – but it’s definitely something to be considered.

So don’t just rush into any project that catches your eye. Do your homework.

Don’t want to end up like this guy, eh?

Interested in other cool crypto posts….check out Mining Wars: Bitmain vs Dragonmint and The Price of Bitcoin vs Cost of Mining.

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