Why ICO's Will Result In the Bubble Bursting

in #cryptocurrency6 years ago

Just like many of you who are on Steemit I am an investor in cryptocurrency and I've purchased ICO's in the past not many but ones I felt would make it to exchanges and I've been pretty lucky so far, probably given the fact that I did plenty of research and was very risk averse when it comes to ICOs. ICO's are an amazing way to make 4 - 10x on your initial investment if you get it spot on but the risk of losing all your money will always be there until you can sell.

So I get the high stakes attraction to it and why people are keen on investing money in ICO's but it doesn't mean you have to back every horse in the race. I've been writing about ICO's for the past 2 months and evaluated tons of them, I've been called and mailed to invest or shill ICO's which I've turned down simply because I didn't believe in their projects.

Screen Shot 2018-05-13 at 09.45.01.png

What is an ICO and where do the problems lie

Before I dive in I'd like to state that an ICO is a great concept and it will remain a popular way to fund promising ventures, but at the moment in its current state I don't feel its ready for public consumption.

An ICO is a public offering without any of the protections offered to traditional investors in public offerings in currently regulated markets. This is really important. There isn’t a regulatory body that is making sure that the investors are protected so scamming has become quite popular and sadly a running joke in the ICO world.

If you're lucky enough to not get scammed investors are buying securities/tokens with no fundamental way to calculate the underlying valuation of the company related to the tokens, there is no regulated reporting to inform the investors post-investment and there are no credible outside analysts making calls about the valuation of the company / tokens.

Most ICOs aren’t scrubbed by any regulatory body. There is no third party making the company substantiate their claims. There is no third party validating the company’s financial statements and the current state of the company and why they need a certain amount of funds to begin operation.

Many companies conducting ICOs have good ideas and are not trying to scam the public. But investors are buying for the wrong reasons and the valuation of the ICO is not based on the fundamental promise of the business. The tokens trade on speculation having nothing to do with the underlying business of the company affiliated with the company.

ICO companies are always valued based on the future potential to generate profits and not revenue and assets the company holds which is why I feel ICOs are building on lies and half truths and why I want to bring it to everyones attention.

ICU or ICO's

The general rule of startups regardless of crowdfunding or seed funding is that they are most likely to fail, fail fast and fail in spectacular fashion but ICOs have taken that to a brand new level. The pace at which they’ve withered and died is insane. Tokendata and ICO tracker lists 902 crowdsales which took place last year.

  • 142 failed at the funding stage
  • and a further 276 have since failed, either due to taking the money and running, or slowly fading into obscurity.
  • This means that 46% of last year’s ICOs have already considered as failed.
  • In additional 113 ICOs can be classified as “semi-failed”, either because their team has stopped communicating on social media, or because their community is so small as to mean the project has no chance of success.
    *This means that 59% of last year’s crowdsales are either confirmed failures or failures-in-the-making.

To find out more about the staggering failure rate and which tokens failed visit - https://www.tokendata.io/

While this doesn't sound too bad many tokens that eventually reach exchanges for investors to sell off fail too. The issue with token funding is that many of these companies focus too much on raising capital or how they going to create a utility for the token and focus less on the MVP/product itself, which is the thing that generates revenue and value and is the reason you've convinced people to invest in the first place.

Many ICO's products never see the light of day and even coins that are quite mature with a multibillion-dollar market cap and are well known do not even have products namely Tron and Cardano to name a few, which is scary.

If you don't have a working product how do you expect to survive? I feel ICO's have skwed the way a business is evaluated and businesses are getting funded on an idea and a white paper rather than functionality. An ICO to me should at minimum have a beta or a MVP up and running before it even considers raising money.

Let's cut the BS on decentralisation & disruption

Since many of these ICO's don't have a product, to begin with, they try to convince investors with their pitch of blockchain providing decentralisation and disruption in some market that has been monopolised by existing businesses and they make millions and wow the market cap of this industry is untapped at billions of dollars. I've literally seen that statement taken verbatim and applied to everything under the sun from dating sites, property, shipping, loans you name it, there's an ICO that wants to decentralise it.

But are they going to really be disruptive? Are they even decentralised? The answer in most cases is a resounding no.

With regard to disruption just because your funding came from an alternative source doesn't immediately make you a cutting edge company, you still need to build a superior product than that of your competitor

Secondly, you need to find a use for your token within that ecosystem to drive transactions, interactions and reward those using the ecosystem, this cannot be applied to every field on a scale and this business model cannot work for everyone.

Regarding decentralisation lets nip that one right now the majority of tokens aren't decentralised with the company holding onto a large stake, other large stakes sitting with key early investors from Pre-sale or ICO and then the majority of minor investors sitting with the rest. This doesn't sound too different from a public company now does it?

If you are to be truly decentralised and for the public, you wouldn't allow investors to pick up large stakes and limit the amount they can buy during the ICO phase. If someone wants to buy large sums of your token once its traded on the open market that's a different story as it would A. mean plenty of minnow investors would have to say yes to fulfill the buying order and secondly by saying no, they are able to restrict entry and drive up the price due to scarcity giving each investor power over his stake.

That may sound a bit idealistic but its closer too decentralisation that any of these ICO's are pitching investors. You are NOT decentralised you just run a crowdfunding exercise, stop lying to the public.

Similarities to the dot-com bust

The dot-com era was an exciting one with online versions of brick and mortar businesses popping up and going public in an instant and raising millions of dollars before they could even reach profitability It was at a point where raising money was so easy all you had to do was put .com at the end of your business name and the shares would rocket in price.

The issue with this was the internet was still in its infancy and the number of users on the platform and potential revenue it could generate at the time was no where near the funding and projections these .com companies came up with, as a result, many of them tanked hard by not reaching profitability and eventually crashed the market.

There were companies like Amazon that survived and helped build a stronger eCommerce environment for the future of online trade and that's how I see the cryptocurrency market too.

At the moment all you need to do is say im going to be the decentralised version of a current industry, slap blockchain in your and you can raise tons of cash via an ICO to fund your project. There ae literally 1000s of ICOs running at the moment who will most likely all fail as they never bring the amount fo users and luquity into their ecosystem in order to run, never mind having a product that generates profit and as these ICOs begin to take and investors pull out the market will be in for the biggest and most sobering correction of its time. It will be a dark day but from it hard lessions will be learned and the blockchain industry will be stronger for it.

It will also be one of the most expensive financial and technological lessons every learned. When will it happen? I don't know but there are way too many signs indicating that it will most likely lead down that treacherous path.

The state of the market

The current state of the market is becoming more and more fragmented with ICO's piling up each day all taking up a small piece of the market while high gains in altcoins have attracted more investors in recent years, especially with Ethereum. Having more money in the ecosystem placed in different areas is great for growth and innovation but as you can see there are plenty of potential potholes in the road to success with these useless shitcoin ICO's taking up valuable resources that could be put to good use with a more promising project.

Screen Shot 2018-05-13 at 09.00.23.png

Check out this video on the evolution of cryptocurrency

Found on Reddit /r/CryptoCurrency/

Trigger happy investors

It's not all completely the token companies fault the market clearly has a few problems, namely too much money floating around and secondly trigger-happy investors looking for a quick buck and getting burned. While I have no problem with anyone throwing a few dollars at an ICO, when people dump their life savings looking to earn early retirement from the gains that to me is a problem. Sure you can do with your money as you please but these bad financial decisions have left families in ruins while the token based companies just pack up and move on to the next project.

There is zero accountability when it comes to loss and investors need to realise that and stop pissing your BTC and ETH down the drain for a shot at the next "decentralised uber for sandwiches"

Have your say

What do you think of crypto of ICO's? Have you invested in any ICOs? Do you think it requires regulation? Will it result in crashing the entire market as a whole? Let me know your thoughts in the comments

Let's connect

For more cryptocurrency news or to hear my opinion on whats happening in the market feel free to follow me @chekohler

resteem, follow, upvote

Source:

Sort:  

Your Post Has Been Featured on @Resteemable!
Feature any Steemit post using resteemit.com!
How It Works:
1. Take Any Steemit URL
2. Erase https://
3. Type re
Get Featured Instantly & Featured Posts are voted every 2.4hrs
Join the Curation Team Here | Vote Resteemable for Witness

Hey. Hoping for a mutual subscription and upvote. I'm developing bots. Is the finished product: auto promoute in steem1t, bot inviter for telegram. Subscribe to mee

This post has received a 76.92% upvote from @lovejuice thanks to @chekohler. They love you, so does Aggroed. Please be sure to vote for Witnesses at https://steemit.com/~witnesses.

Coin Marketplace

STEEM 0.35
TRX 0.12
JST 0.040
BTC 70753.86
ETH 3589.34
USDT 1.00
SBD 4.75