The current state of ICO’s is both terrible and great at the same time. In fact, it’s so awesome that I think it’s time to leave soon. Or rather, I don’t think there is going to be a place for regular investors like myself in the coming months and years.
A lot has changed in the last year. Securities regulations applied to ICOs for better or worse has curbed much of the unfettered actions of the market. Scams are still happening, but at a much lesser rate, or at least there haven’t been many major projects which have pulled an exit scam. Good projects are raising all the capital they need, bad projects are still failing to do so. Most investors are still looking to flip, but now we have bigger funds stepping in to start investing for the long term. (AZ Article). Long term, the market looks great, its professionalizing, losing its bad image, and mostly discharging a lot of the bad actors who were solely in to make a few bucks.
As we evolve though, much is being lost. Namely, the biggest casualty of them all, the public sale. If 2017 was the year of democracy and revolution for capital raising, 2018 is the year in which the status quo returns. ICO’s at their core are and should be solid rejections of the entrenched bourgeois establishments control over investing. Archaic rules constructed during the depths of the Great Depression still segregate investors into the haves and have nots, accredited and non-accredited, rich and poor. As a result, US authorities restrict the sale of securitized products to non-millionaires to “protect” their hard earned wealth from bad investment decisions.
The protection is asymmetrical though, as the establishment is simply ensuring that large swaths of the population are not swindled or cajoled into investing more than they can afford to lose. A gullible investor who puts half their life savings into a project, only to see it drop by orders of magnitude probably will have to turn towards government assistance later on in life to make up for their savings gap. Thus, its more desirable to limit certain types of investors from the outset to specific categories of securities.
Concurrently, companies planning to ICO would rather exclude these types of investors in order to skirt the hassle of filing for Reg A or CF, the former of which costs almost as much as an IPO and takes months for regulatory approval. Even after approval there are strict regulations as to hodling periods, amount of investors and other rules to follow. Because of the hassle, most companies simply either exclude all Americans, or just non-accredited ones.
For less wealthy investors, this hurts them. Cost basis matters. Being able to access the private round and get an instant multiple leads to greater overall long term returns. Plus, the investor will be able to weather greater volatility. But under the current rules, exclusion from the private sales entails being relegated to the worst tier, the last schmuck who puts in capital to provide returns for those who invested at a lower rate.
So now we return to the status quo, newly formed “crypto funds” are popping up at an increasing pace to fight for allocations. With big bags of ETH and BTC, they can acquire a vast amount of one coin and “centralize” the project around their interests and affect the market as they see fit.
Another worrying trend is that companies are pushed to raise more money than they need to get listed on a major exchanged. Rumor has it that Binance requires 5-10 million USD, other exchanges charge 250k-1m USD in fees. More so, many exchanges won’t even look at a project unless they feel it’s big enough to bring significant trading volume. One project I had been speaking with told me they only needed 3-4 million USD to run the company for the next few years, but at the behest of funds and investors who were worried it wouldn’t get exchange listed, they were going changing cap to 20million to make it “more attractive” as a project. That’s a 5x multiple being cut out of returns, just to have a chance to get a major listing. Investors need to be able to come in at small valuations, crypto is extremely risky and jumping on to a small cap project needs to offer significant upside for the risk being taking.
The state of the current market is both terrible and great.
I didn’t get into blockchain to invest into permissioned closed source enterprise products that lack censorship resistance, immutability and strong governance. More so, I wasn’t attracted to ICO’s initially because of the private sales, pre-sales and private allocations. I also didn’t come for the billion dollar valuations based solely on a whitepaper and no product.
I came for fully public, transparent, and ethically run sales of tokens and coins. I came for vibrant communities, transparency and openness. I came for the promise of a better future.
Growing up means coming to understand the realities of the world. The dreams we have in our youth transform over time into more practical applications of our inner beliefs. Ideas shifting from concept to the particular instantiation of it are not always quick, easy and without problems. The ethos of our roots should not be lost in the face of the establishment.
While I hope for a rejection of the current trend, it’s advancing like a tsunami washing away primitive structures and clearing space for development of modern behemoth developments. The only chance we have then is to run for the hills and adapt to the new day.