Investing in ICOs
I’ve spent the last few weeks looking at upcoming ICOs, and there are certainly many worthy of a chance to make their concept and technology work. With decentralization disrupting industry after industry, there are likely some truly game-changing unicorn platforms among them. Unfortunately, there are also many that don’t have anything but a website and an idea, with no proven traction or technology. The majority are asking and raising, millions of dollars —in some cases $20+ million equivalent in cryptocurrencies. This is a problem for investors. How can one tell if a project is worthy of investment? Is it such a hot space that investing in a dozen or more will return some upside?
If so, then we are truly in a bubble. It’s not easy to choose. As an investor, the odds are against you. It takes time and due diligence to investigate each company and decide if its token is worthy of investment. There are hundreds coming, many of which you should pass on if you understand the technology and the space, and do your homework.
Perhaps one can get lucky with a “hot space” investment strategy, but I prefer to read the white paper (read: plan) carefully, investigate the team leaders, and the merits of each business model and it’s benefits to the new “blockchain economy.” Due diligence, however, doesn’t seem to include traditional due diligence. Nobody even discloses the basic information needed in a traditional offering of securities. Nobody asks the important questions, like “Who controls the company token ownership, one person or many?” Each ICO’s receiving wallet (private key) should be secured by multi-signature hardware wallets, which is voted upon by something similar to or representing the board of directors.
There are lots of ICOs that make no sense, either because another ICO has already raised way more, or because the problem they are trying to solve won’t really matter in the long run. Blockchain is going to change many industries for certain, and the best bets will survive. But other projects in the ICO pipeline are doomed, not only because they seem to be “me too’s,” but because they may not execute correctly . I see way too many with no track records to speak of.
Consumers have many options, including public companies with billions in cash reserves, yet they don’t become shareholders in those, never mind “token holders.”
Blockchain is a new technology, but that doesn’t mean consumers care. Frankly, they already have safer bets, albeit with lower returns, yet most do not participate.
In the long run, there will be winners, and losers, just like the dot-com boom/bust.
The forthcoming regulation that we all know is coming will serve as an equalizer, and vet offerings for investors according to some standard that government regulatory agencies will approve. Let’s hope ICOs cause regulatory authorities to rethink their current rules and adopt new regulations that don’t stop the momentum crypto has today.