Thoughts on ICOs

Big News: Thoughts on ICOs

It seems like everyone is doing an ICO and making a ton of money, and when you look at how far along some of these companies are, it’s a bit scary. In some cases, millions of dollars are being raised on an idea and a white paper.

Now, these fledgling projects are funded like legitimate institutions. They now need to hire full time developers that are on par with the best developers in Silicon Valley. These developers typically are experienced, they have families, homes, etc. All of which requires bills to be paid in fiat currencies. These companies can no longer subsist by paying their employees in crypto. Plus, cryptocurrencies are still so volatile, that they can’t afford to expose themselves to that risk. So what will they do?

They will sell their BTC and ETH fairly soon. In fact, Tezos, whose ICO starts on July 1st and is expected to be one of the largest ICOs ever, states, “The [Tezos] Foundation will manage the proceeds of the fundraiser and sell contributions progressively throughout the fundraising period in order to reduce the risk inherent in holding cryptographic tokens. (Source)

Ultimately, we’re on track for nearly $1 Billion raised in token sales this year. I don’t think this bodes well for cryptocurrencies overall for the short term, although Bitcoin may prove to be a safe haven. Undeterred? Still want to invest in ICOs? Here’s a few things to consider:

  • You should understand what the token does, and try to imagine a world where you can see yourself using it.

  • Valuation and amount raised matter a lot. More isn’t always better.

  • Avoid scams - do your homework and try to get to know the team as best as you can.

  • Developer ecosystem - how active is the community as measured through things like Slack channel participation, Github activity, or other apps built on the protocol

  • A token sale is in many ways a totally unregulated beast. Is it stock? Is it crowd equity? Is it an asset? Regulatory bodies still haven’t weighed in but likely a vast majority of these tokens will be considered securities.

Check out Fred Wilson’s post for more considerations on ICO investing.

-Spencer & Matt

Interesting Articles

  • *Best* Thread of the Week. If you read one thing this week, read this! Naval Ravikant eloquently explains blockchain with regards to networks. Link

  • Buyer Beware! Make sure you do your homework before you consider investing in the next ICO. Fred Wilson lays out the 6 key considerations. Basically, don’t be greedy!  Link

  • Jesse Felder, typically a voice of reason, explains his thoughts about bitcoin and cryptocurrencies being in a bubble. Link

  • If you hadn’t heard already, ETH experienced a flash crash on GDAX due to a $30 million sell order. The flash crash took ETH down to .10. It caused a lot of serious pain especially those that were using leverage. On Reddit, many people reported losing $100k+. And then 3 days later, GDAX announced they would refund anyone who was negatively influenced by the flash crash. Crazy! Link.

  • I’ve likened Ethereum to the app store in the past. This article does a much better job at expounding upon crypto leading to the next wave of the app economy. Link

  • The International Monetary Fund (IMF) is urging banks to explore and potentially invest cryptocurrencies. Link

  • Not sure this is blockchain related (yet), but this ‘smart ring’ is really cool. The ring replaces credit cards, keys, & passwords. Link

  • There seems to be some incredible similarities to the the crypto bubble in 2013 to the bubble we’re experiencing now. Link

Chart of the Week

Crytpo had a rough weekend with the overall Cryptocurrency Market Cap dipping back below $90B at one point. Like Bitcoin in 2013, are we still on the way down?