How to ICO in a Bear Market

CryptoFinn
Sep 9, 2018 · 4 min read

Over 3,300 ICOs to date are built on and raised funds from Ethereum, of which, a staggering average of $4.9M raised per these ICOs. That’s $16.7B worth of ETH (note portion could be in fiat or other form of crypto). To put things into perspective, the ETH marketcap as of this writing is $20.6B. Too much ETH have gone into the hands of companies, who are liable to maintain the value of their assets of their company and for operations, have been joining the miners as natural sellers in this bear market, fueling the selling pressure.

Ethereum was always plagued with the uncertainty of scalability and with CryptoKitties and popular ICOs saw the network being unusable for almost 2 days. The network upgrade Casper shifts to PoS instead of PoW and Sharding has been discussed for months, with test networks done in Jan 2018, but yet implementation is nowhere in sight.

I’d personally attribute this blind following due to crypto tribalism and ICOs’ mimicry with limited knowledge of the platform they promise to build on. Selling big dreams on a unscalable platform, only to pivot later abandoning their Ethereum tokens, failing to create value for the Ethereum chain. Indirectly creating an unorganized cycle of pump and dump.

With Ether at its lowest in a one year window (Sep 2017–2018) as of this writing, investors need confidence in the market to start investing again. Likewise majority of ICOs are postponing or putting on hold indefinitely on their public sale until favorable market conditions is seen again.

The ICO market needs a catalyst for a reversal, I’ll not touch on the obvious like approval of Crypto ETF or regulatory framework for ICOs but rather focus on issues ICOs themselves are in control of.

Raise Less

Less is more, especially for investors. The less money you raise, the easier you can return more money to your investors. Problem with most ICOs today that they raise an obscene amount that they can’t possibly deploy effectively in order to create value for token holders. This is more evident in ICOs that raised in excess of > $25M (shan’t name names), most of them are trading 10% — 25% of their Bitcoin value (so let’s not blame bitcoin).

Accepting money and not able to deploy it to create value is a form of negligence of the management of the company. Personally I have always preferred coins with a small market cap as you can see the gains much more exponentially. Investing in something that already positions itself in the top 10 market cap coins before its ICO and listing can only see more down side than upsides.

Also as a VC with experience running a company, companies don’t really need that much to operate. For example. AirBnB and Coinbase raised only ~$600K which lasted them a year and a half. Having too much cash on hand will only create moral hazard that stifle growth if its operators are too comfortable.

Tiered Token Sales

Just like venture funding, that creates value for each earlier round of investors, token sales can too be done in different tiers. Rather than racing to an exchange listing, ICOs can consider spreading out their token sale and ensure at each tier and phase of the company they’d garners enough interest, with the ability to offer investors an option to cash out, should the next tier be sold.

Listing after all tiers has been sold positions the company in stronger manner, creating trust and accountability towards its investors, in turn create greater demand upon hitting the public exchanges.

Securitise Tokens

Its a common misconception that you can’t create a security token, the mythbuster is you actually can, just that the SEC has to know about it. Definitely the whole idea an ICO is to bypass the regulatory framework you might ask, but crypto based security tokens that are asset backed or revenue backed can be interesting stable instrument for crypto investors to hedge into in times of volatility thus creating liquidity for these security tokens investors.

Of course, the governance that comes with securities gives institutional money access to cryptocurrencies. Although the main considerations for a security token is the cost for legal and compliance even before any token issuance, there are platforms that brings down this cost and helps you launch a compliant security token.

In Closing

ICOs may be using crypto market conditions as an excuse to delay their sales but no one is looking at restructuring their fundraising efforts or going against the tide. No matter what form the catalyst may take, the best way to predict the future is to create it.

CryptoFinn

Written by

Crypto Astrologist blending technical charts with lunar eclipses and celestial retrograde indicators.

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