Beware of Ethereum ICOs and Potential Capital Destruction
I have a portfolio of over 30 crypto currencies. Of these 30 not a single one of them is an Ethereum Internet Coin Offering (ICO). I have many reservations about these deals, not to mention the overhyped returns of Ethereum which may be a bubble. Some of the ICO tokens seem developed merely to enrich the promoters at the expense of ordinary investors who don't yet have the expertise to vet deals. The Youtube video below offers similar sentiments:
This article is a good overview of factors to consider to avoid investing in scam ICOs.
ICO Buyer Beware - VC Fred Wilson
Six key ideas are paraphrased from the above article by venture capitalist Fred Wilson.
What is the amount being raised? Many ICOs raise far more capital than they need. Other factors being equal you want a lean management that changes the world on a shoestring budget.
What is the opportunity and can you explain it in simple terms? There needs to be real utility offered by the token, not another me too token that merely rehashes the Ford Model T.
What is the valuation of the crypto token? This should be expressed as market capitalization, not price since the market cap can be distorted by high circulating share counts. And how does number this compare with the perceived valuation 5-10 years out?
If the deal walks, talks and quacks like a scam, then it is scam. Scamming exists in all forms of investing: IPOs, penny stocks, slot machines, etc. Slots aren't investing technically, but the expected returns are surely negative.
Is the technology operational? Or does the crypto token only have a white paper and no technology? The chances of success diminish if you allocate capital to a blue print.
How much of a factor is greed in the investment? If the primary reason for investing is because all your friends are in knee deep that's a bad sign and its worth taking a pause.
The following two articles offer a very critical view of two recent ICOs including an exhaustive review of potential problems with these deals, including Bancor and Patientory.
ICO Patientory 7 red flags - Reddit
Bancor is flawed - Hacking Distributed
My suggestion for investors is to consider ICOs only after the deal blows up and you can purchase the tokens at a 90% discount. At that point the hype premium may be gone and you may have a promising investment. As always I would be delighted to hear back from investors.
Thanks for your perspective; makes me not care so much I got shut out by an ETH network that was no up to the task a couple times..
Your welcome, you may have missed a bullet and saved yourself a bundle. As mentioned I think the chances of success on the trade increase deramtically after the deal blows up. Good luck with your investments. Best Regards, Max
but ive already invested
Now, its time it manage the risk of the trade. Hopefully you used a reasonable position size that will prevent you from losing much on the trade. Many of my initial investments are from $100 to $750. I always allocate with the idea that my investment may drop 50% the day after I put on the position.
I am with you on this one @maxmonroe. There is a lot of fiat currency flowing into ICO's and surely over 90% of them will eventually fail similar to the tech bubble in the 1990's. This is where learning from history is a good thing so it doesn't get repeated at the expense of your wallet. I am playing it safe for the time being and investing mostly in the top 10 cryptos. That's my play and two fiat cents on the subject. Thanks again for a great post!
Than you for the compliment, indeed I am afraid many of the ICOs will blow up and this will likely lead to more regulatory scrutiny by the SEC. Crypto is one of the few ways that small investors can participate in venture capital.
Dude the EOS ICO has more than 60M$ WTF!!!!
@enazwahsdarb Check this out!