If you just bumped into the Initial Coin Offering bonanza you might have the feeling that you have already missed those ‘big’ investment opportunities with three-digit returns.
In this post I will argue that you have not missed the ICO boat at all.
ICO Sprint or ICO Marathon?
It all starts with your investment strategy: If you are investing for quick returns with high risks then most current ICOs are for you.
With short term ICO investments if you ever see your money back with or without any profits those returns will not come from business activities but from other micro-investors. If you agree with William Potter that “…the trick is not minding…” then don’t read further, go and get lucky!
But I believe some ICOs have much more to offer than high-risks with shady returns so it is worth taking a closer look!
Back to Basics
Ponzi Scheme Definition
“…A Ponzi scheme is a fraudulent investment operation where the operator, an individual or organization, pays returns to its investors from new capital paid to the operators by new investors, rather than from profit earned through legitimate sources…” /Wikipedia/
ICO vs. IPO
The naming ICO (Initial Coin Offering) comes from the good old stock exchange jargon of IPO (Initial Public Offering). But there is a great difference between an ICO and an IPO and no it is not merely the regulatory or technological difference but the state of the business.
IPOs are for established businesses with historical financial data and business past.
ICOs on the other hand are mostly a special type of crowdfunding meaning that all they have is a plan about what they would do once they have the sufficient funds.
This makes it very hard to predict the future trajectory of a business doing ICO.
This is why professional ICOs make huge efforts to get successful business individuals on board to suggest their future success. They have to as they don’t really have much else to build on. But many times those big names are only in the advisory board compensated by ICO tokens without any real stakes and influence on the business itself.
But Some ICOs…
There are already some ICOs for long-term investors with current business activities. Business activities creating real added value by selling real services and products to real buyers. These are the ICOs to look for. It is easy to find them by having a look at their white papers or Draft Red Herring Prospectuses.
Those documents look similar to this structure: ICO White Paper Structure
What forces drive this ICO bonanza?
You might wonder what makes even shady ICOs so successful? I believe that there are three forces adding up their effects: capital controls, millennials, and the everything bubble.
Capital Controlled Countries
Most BRICS countries have very strict capital controls applied. For micro funds and investments it is too expensive, almost impossible to exit those countries. Imagine that you witness the gradual success of Facebook, Twitter, Tesla, etc. but you cannot invest in those IPOs as a micro investor from a capital controlled country. This feeling of being left behind can build a strong motivation to find international micro investment opportunities like ICOs.
There is a generation for whom it is completely normal to spend hundreds of dollars on a fancy tank(!) in a video game. The first financial transaction in life for most Millennials was to purchase some digital asset (game credit, subscription etc.) with their parents’ credit cards. The business heroes of millennials (Dell, Jobs, Assange, Gates, Zuckerberg, Kalanick… etc.) dropped out of university to manage startups with IPOs and with huge financial exits. This generation has a special relationship towards digital goods and startups and ICOs taking advantage of this.
According to Mike Malone we are facing the everything bubble in the global markets. (his claim includes shares, real-estate and bonds) I humbly would add crypto currencies and any other crypto assets too. There are vast amounts of funds looking for anything and everything to diversify and to realise extra profits. Bigger investment amounts can easily manipulate the price of smaller securities but with ICOs they can do it without all the fuss of regulatory headaches.
So all in all: Yes, if an ICO looks like a scam and swims like a scam it is a scam, but if an ICO looks like a legit business and swims like a legit business it can get you decent returns!