Initial Coin Offering. Do You Want To Know Which ICO Cryptocurrency and Blockchain ICO Opportunities Are Coming Up?

How can you find out what’s happening in the ICO Market?

At the time of writing this blog, we are tracking around 40 companies whose offering is at the Pre-ICO stage, and another 90 that are at the ICO Stage.  The New York Stock Exchange (NYSE) on the other hand, hosted the majority of initial public offerings (IPOs) conducted in the first half of 2017 with 49 new listings, raising over $19.3 billion in capital, representing 88 percent of all proceeds raised in the U.S.  Researching or investing in an upcoming IPO can be accomplished by going through your broker-dealer and obtaining a prospectus.  There is no recognized Broker-Dealer network established/available for you to access information about upcoming ICO’s.

What are the key elements of an ICO that you as an investor should read carefully and understand completely, or seek advice on?

 

General information:

• Date or block number: What date and time, or mined block is the sale going to start?
• Duration: For how long will it go on? Is it time or block framed?
• Caps: Are there any soft or hard caps? Mixed caps?
• Supply: How many tokens will exit and how many are being put on for distribution?
• Token minting: Are tokens mined or pre-mined? What happens if some tokens are not sold
• Exchange Rates: What are the rates for acquiring tokens in exchange for the accepted cryptocurrencies? (i.e. 2000 Project token’s = 1 ETH)

Distribution:

• How much of the tokens will be distributed in the sale?
• How much will be kept by the organization?
• How much will go for advisors, community, sponsors, etc?

Allocation of proceeds:

• How will the received funds be used?
• Percentage distribution on development, marketing, legal, business development, etc.

Token Allocation and vesting:

• What are the criteria for a team to be able to access the tokens they retain in the sale?
• Are there any vesting or cliff periods to keep incentives aligned?

There still hasn’t been a perfect token sale and there probably never will. Different approaches will serve different interests and projects. Just like Vitalik Buterin, Ethereum Co-Founder states on his post on Token Sales Models (published before the 2107 ICO frenzy).

 

Coins Coins Coins

A step by step of an ICO can be summarized as follows:

 

Pre-Announcement:

This is the marketing stage of a future project through sites frequented by cryptocurrency investors, with the creators of the project preparing a white paper, essentially an investor presentation outlining the details of the project.

 

Once the white paper has been circulated, the company will get a sense of whether there is investor interest in the project proposed, with the company then addressing concerns and addressing risks raised by would be investors to reach a final business model and a final version of the white paper.

 

Offering:

This is the final version of the white paper, setting out the terms of a contract for the benefit of the investors, made on behalf of the company entering into the ICO.

 

The offer will outline the project details, the total amount of capital required, together with project timelines. It will also indicate the financial instrument to be sold during the ICO, normally tokens. The financial instrument will have a value assigned to it, together with the rights of the investor along with the expected period after which the company will commence returning earnings to investors, traditionally by way of dividends.

 

Once the offer has been signed, the ICO start date is announced and the marketing campaign moves into overdrive.

 

Marketing Campaign:

This is a pivotal component of the ICO, with the marketing campaign key to the company being able to raise the necessary capital. Companies are generally nascent and unknown, bringing marketing agencies into the frame to make the necessary presentations, etc. The campaign will tend to last up to a month on average, target audience being institutional and some smaller investors. Participants of crowdfunding programs tend to be the main segment, investors generally more willing to back projects, with their involvement in the project considered a positive for both the investor and the company.

 

Once the marketing campaign comes to an end, the buying and selling of tokens commences, with the company having established an exchange for investors to acquire tokens.

 

The ICO: Companies generally release tokens on blockchain in two ways:

Collect the specific capital, outlined within the offer, and then divide and distribute the tokens to the investors based on initial investment made.

Alternatively, tokens are sold on cryptocurrency exchanges, which means that the tokens need to be released on a number of exchanges in advance for trading.

Once the sale has ended, the company commences on its obligations.

 

For the investor, it’s a case of exploring the various exchanges or social media sites that publish active and up and coming ICOs and then opening an account, acquiring the tokens, having completed the necessary due diligence on the company or project  in question.

 

How can you join (participate in) an Initial Coin Offering?

There are a number of sites that list current and up and coming initial coin offerings including Reddit, Cyber Fund and even social media sites such as Facebook.

 

To invest, the first step of the process is to identify which project or company launch is of most interest and while searching through the ever increasing number of ICOs hitting the worldwide web, set up a cryptocurrency wallet.

 

With a lack of formal structure, each ICO will likely have a different set of requirements, though ultimately it’s a simple process of sending tokens upon payment by cryptocurrency to the blockchain identified and listed on the ICO website, which will also provide the investor a step-by-step guide into the investment process.

 

Public sites, such as Blockchainhub, advise that before investing it is important not to use any kind of an online wallet or exchange. Backers are generally required to export their private keys into another wallet in order to access their new coins, so it is vital to ensure that the wallet’s private keys are exportable.

 

Companies have looked to facilitate the process by making available functioning online wallets for their ICOs, where the investor can send the money directly to the wallet established, the funds exchanged for tokens using the exchange rate at the time of purchase, with the tokens deposited into the wallet. Others remit the purchased tokens to the address from which the funds were sent.

 

Investors will also need to be aware that certain wallets may be incompatible with the tokens and are therefore not visible following purchase and receipt. For this reason it’s essential to have a wallet which permits the export of private keys, so that it is permissible to transfer the tokens to a new compatible wallet.

 

It’s become far simpler since the launch of Ethereum, with creators setting up user-friendly campaigns, with Ethereum’s wallet supporting multiple tokens, making access to purchase tokens far easier than before.

 

Outside of identifying the ICO itself, due diligence is also recommended in the interest of avoiding scams and Ponzi schemes, with ICORating providing would be investors with a full assessment of the project or company in question and other companies providing some additional background should more details be needed.

 

Investing In Cryptocurrency. So should you jump into (onboard) an ICO or not?

Investors will be wowed by the returns and the surge in market cap of cryptocurrencies over the last year and, while there are certainly some tremendous opportunities and sound investment opportunities to be had, there are risks that need to be considered before entering the blockchain world.

 

So, as is always with the case with any investment and never more so than those that can give investors returns in excess of 100% in a matter of months, there are pros and cons for the investor to consider.

Let’s start with the positives

• Despite the number of ICOs hitting the market, as many as a 100 every few weeks, there have been a large number of companies that have become incredibly successful, having raised capital through ICOs.
• The high ROI (Return on Investment) story certainly provides an opportunity for the yield hungry, though where returns are on the higher side, there is a higher level of risk associated with investing.
• Perhaps the greatest feature of an ICO is that the tokens are considered liquid, unlike investing in traditional startups, where investor money can be tied in for years. ICO investors can cash in and out at any time, converting ICO tokens into Bitcoin or other cryptocurrencies with ease, assuming the demand is there.
• There are also no fees similar to those that investors face with IPOs and then there are VCs, who like to run the show and make unnecessary demands, which could devalue the investment on occasion, companies losing their identity in search of the Dollar.

Where there are positives, there are also negatives to consider and some of the more negative elements to investing in an ICO include:

• Well-known for failures, with too many projects being alike or with projects failing to reach expected levels, driving the value of initial coins to zero.
• A lack of governance can lead investors down the garden path, with a lack of appropriate due diligence leaving investors open to Ponzi schemes and more.
• While the upside can be sizeable, it’s ultimately not something to bet your shirt on and any investments lost as a result of scams and frauds are unlikely to be recovered.
• With the lack of regulatory oversight, investors do need to do a decent amount of due diligence and repeating this view is reflective of the need, with the number of fraudulent ICOs likely to be on the rise as regulators lag behind the segment.

 

Due diligence tends to be expensive and when it comes to cryptocurrency economies and ICOs, the market is beginning to see the presence of rating agencies, who conduct the due diligence, carrying out the necessary analysis of the information at hand, with the rating agencies publishing their research reducing some of the risks associated with investing in ICOs, self-policing coming in ahead of any more formal regulatory oversight.

 

ICORating is one of the agencies undertaking the task of providing some cover for investors and the analysis will certainly be a starting point to drive the ICO market to the next level, though even rating agencies have been known to get it wrong from time to time.

 

On top of the ratings, investors can also look out for ICOs that include independent escrow agents, so that the capital raised does not reach the company entering an ICO, but a 3rd party.

 

Multi-Sig is an example of such an escrow agent, with the agent essentially funding the project on an ongoing basis, funds released from an escrow as needed, the agent ensuring that project targets are being met along with the company’s pre-determined obligations to the investor.

 

So, while some level of control is entering the market, the question remains on whether this is another dot.com. The sceptics have been out in force since the Global Financial Crisis, with every investment opportunity being labelled as economic bubble, included Bitcoin.

 

The similarity is the fact that its digital and more importantly, lacking of physicality and investors don’t have to think too far back, when companies were selling concepts for millions of Dollars.

 

For now, ICO fund raising falls well short of the levels seen during dot.com era, which should provide some level of comfort, the only concern being a collapse in the market should the volume of fraudsters surge over the near-term, or there be a collapse in the valuation of cryptocurrencies.

 

The association is ultimately coming off the back of the surge in valuations and market cap of the sector, but the surge in market cap is not isolated to blockchains and start ups hitting the market looking to take advantage of the yield hungry investor, so calling a bubble for now is certainly a more pessimistic view point. You only need to go back to the early days of tech stocks such as Intel, Apple, Microsoft and Alphabet to consider how the industry can be reshaped in the years ahead.

Regulatory oversight of some sort will certainly provide it will longevity, though the attractiveness of ICOs could be lost should the minimum requirements become as intensive, such an outcome not killing off the industry, but just the medium through which capital is raised. It’s pretty easy for creators right now…

 

For now it’s a phenomenon, but tomorrow it could be yet another cautionary tale, joining the dot.com and MBS (Mortgage backed security) stories of yesteryear. It will boil down to the integrity of the sector and the success of companies raising capital, mindful that not all will deliver, but at least a majority.

 

The numbers certainly point to a bubble, with ICOs in the 2nd quarter of this year each raising in excess of US$10 in a single day and the sizes are rising as investors look to cash in on the trend before the bubble bursts. If you can get in and get out with your tidy profit before doomsday, then it’s the investment for you, but as with any bubble, few can predict the day of the crash.

 

Investors are throwing money ICOs and in certain cases, the business models or scope of projects are shady at best, but with cryptocurrency valuations on the rise, the investment may be justified, a crash in the value of Ether or Bitcoin could be a different story altogether, such an event not a completely farfetched consideration for investors looking to convert relatively stable currencies into tokens, the success of the business itself not the only consideration, the value and stability of the cryptocurrency also needing to be considered.

 

Does that sound like the Dot.Com bubble, where valuations grew exponentially, with the NASDAQ surging from under 1,000 to over 5,000? How did it happen? Cheap money, market over confidence and investors on the hunt for the next big thing after mortgage backed securities… Current surges in post ICO valuations are certainly not based on anything tangible, with projects or businesses in their early stages, so 10x increases in a matter of months sounds somewhat extreme, the appetite for cryptocurrencies perhaps masking the business or project the coins are actually investing into…  When you consider the regulatory oversight of the NASDAQ, that’s quite a run and quite a fall from grace. The gains in Bitcoin alone have been striking, bringing new investors into the market, but how long before the wool is pulled from the eyes and the smart money walks out door leaving the last person to turn out the lights. These things tend to end in tears after all…

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