Initial Coin Offerings (ICOs) are the new darlings of 2018 after the cryptocurrency fever subsided in Jan/Feb. Two incidents that happened this week prompted me to pen down my thoughts today.
I have been trying to learn about this new turbo-charged way to IPO a company. Governments currently still do not have any ideas on how to monitor/regulate this new way of bypassing the current legal framework for companies to access hot money, even directly from the retail level. It is like the new casino betting scheme of the internet. Get in fast (pre-ICO preferably and at a huge discount), pump and dump for a large profit a month after ICO date.
I have 2 main reservations about ICOs. These companies issue their new crypto in exchange for fiat currency or higher value cryptos (eg. Bitcoin or Etherum). While they may state the maximum amount of coins they will issue, they can theoretically control/add to the supply. Hence they can easily sell more if and when they need to in the future. Secondly, with the new subscribed funds they have collected, they can also use these proceeds to support their crypto coin if it weakens and prop prices to artificially maintain a “bullish” trend.
I attended a free crypto seminar the other day which was trying to sell a 3 days workshop at $2.5k. The 2 hours presentation basically suggesting a 3 prong crypto action plan : (1) mining, (2) trading and (3) ICOs. I was very skeptical of all 3 approaches.
Mining with a single rig at home is getting less practical with greater competition. This presenter had a big warehouse rigged with mining machines. How can you compete with this? It is becoming harder to mine the top currencies nowadays.
Being in the banking line for too long, I understand that the concept of trading always sounds easier than it looks. Crypto liquidity is bad and with no market makers, it is a death trap for novice retail “traders”.
And ICOs? The “real-life” examples of his less than 8-months-old fund are all about pump and dump schemes. Get in at pre-ICO with a big discount, see price jump 10 folds in a few weeks and then sell out, move on to the next ICO. That part about being in the know about ICOs and having insider knowledge to analyze the fundamentals of upcoming new ones is a load of BS.
I had a chance encounter with 2 ICOs this week. Both are on the extreme ends of the spectrum. On the web, I came across an article which proclaims that Sweden is going to be the first country to issue its own crypto. To learn more about it, I registered my email and phone number. A day later, a guy with a fake Swedish accent called me and tried to get me to subscribe. On further questioning, he became defensive. The only news I can see on the web is that Sweden is only considering it and that this might take a few years to conceive. I thanked the guy for his scam call and ended the conversation.
The other incident made me seriously consider investing in an ICO. Met my cousin for a long overdue lunch catch up on Monday. He initiated it because he heard from my dad that I was involved in microfinance. As an accountant by training, he has been involved in one of the prominent Singapore dotcom companies since 2000.
Over the last 2 years, he was a co-founder of a new P2P company looking to tap the growing affluence of middle-class travelers from China. There was also the social angle of his ecom firm, to help small high quality local Asian tour operators efficiently connect with this China market segment. They are currently preparing their pitch for an ICO and finalizing the overall marketing pitch. The other attraction for me was their Chairman. He was someone I knew from my school days who had done well in ecom and brick and mortar businesses and is now a full-time angel investor.
My cousin shared with me their white paper and I introduced an ex-colleague to him (a co-founder of a crypto microfinance related venture that had recently done an ICO). His proposed panel of board advisors looked promising too. I spent some time reviewing the paper and sent him a list of questions as he wanted to get a different perspective and feedback from an ex-banker. As he had mentioned about a pre-ICO sale, I had also expressed my interest in subscribing to a small amount. The other angle was for me to become an agent for them during the large funds raising phase to attract anchor investors.
My thoughts about ICOs now? Like cryptos, this is an exciting and evolving market phenomenon, a brave new world out there. Is it dotcom 3.0 ? Who knows if it is a bubble or that it will change the world?
I am a firm believer in Blockchain and how it will destroy a lot of norms once we get a breakthrough. FOMO (Fear Of Missing Out) dictates that I should get my fingers wet in a controlled manner, but also try not to bet the whole house or put all my eggs in one basket. It is a continuous learning process for me and fits into the life-long learning mantra I subscribe to.
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