The ICO paradigm shift

The ICO is a Game-Changer

ICO’s have changed the game. While fraught with enormous risks, they have allowed non-accredited investors access to startups that were not previously available. Accredited investors have had access to by far the biggest investing opportunities for a very long time.

A major barrier to economic mobility has existed for many years in traditional financial markets. Major tech startups that would at one time IPO early enough in their development stages to provide the potential for out sized gains, now IPO well past the major growth phases. There is an inordinate amount of venture capital available for startups to feed off of, so they have forestalled the public funding of an IPO.

The process to become publicly listed is lengthy and expensive. That combined with the intense microscope a company is under once becoming a publicly traded company has caused the IPO to be a less desire-able money raising vehicle. Once public, a company is under intense pressure to perform every quarter. Re-investing in the company at the sacrifice of quarterly profit is to some degree frowned upon. Companies have chosen to defer IPOing in order to focus on the long term, and not be forced to be hyper focused on the short term.

While there are many examples here are two notable ones:

MSFT

MSFT moved 1258% in it’s first 5 years, moving from a split-adjusted $0.10 to a split-adjusted $1.34.

FB

FB IPO’d at $42.05 the week of 5/14/12 and closed at $148.06 the week of 5/15/17 a gain of 252%.

Recent changes, most note-ably the IPO market, but also to a lesser extent the crowdfunding movement have changed the game. The JOBS Act did allow companies to pursue equity crowdfunding. However, due to the SEC dragging their feet on laying out the rules that would allow the act to actually take effect, and the costs and difficulty associated with issuing the equity to 1,000 people instead of 10 large investors, equity crowdfunding has not really taken off.

ICO’s have stripped away all the bureaucracy and red tape, and made it much easier for startups to crowdfund. They can essentially bypass a lot of the government restrictions and have funds raised in a few months versus the potential for many years. The game has changed. The window may be closing, as the government has begun to take notice. Do note that the government moves incredibly slow, so there is still time.

Not Without Risk

That being said, while there is a lot of potential in the ICO markets, there is enormous risks. The lack of restrictions has brought an influx of scams. Making a new token on Ethereum or similar smart contract block chains such as NEO is trivial. Make a flashy website, a compelling white paper, advertise, get a bunch of posters on reddit to promote for you. Then ICO, cash out and move to a remote rain forest village. Simple enough, who’s with me? :)

Recent Small Cap Trades

Two of my recent major trades/investments in small cap coins have been IOTA and DBC. While I have made nice gains on both of these, as I did get a very good exchange price on them, they ICO’d at a much lower level. mIOTA ICO’d at 40 satoshi(as close to $0 as you can get) and DBG ICO’d at $0.0158 USD. I may not have bought IOTA at ICO as there were some legit question marks with that ICO(white paper, but no product), but I do believe I would have bought into the DGB ICO had I heard about it before hand. While I am 10x+ in profit on both of these at this point the potential of getting in much lower is possible.

How to Sift Through the Pile

I personally have done very little with ICO’s to this point. I have recently put a small amount of capital into one project. I am a very skeptical person, which is probably helpful in these markets. The problem I have found is trying to sift through this massive pile of junk projects to get to the really good projects is immensely challenging. That is why a major new goal for me personally is to find a way to streamline the process as much as possible.

Potentially, a collaborative effort might work for something like this. If a consensus could be made on how to properly analyze an ICO, then the work could be divided out amongst an ICO Super Team. That is just one idea, perhaps there are better ideas out there. I would be interested in talking about others with this. Sign up for my Discord Discussion Group, and we can discuss a strategy for this and many other things. I will be sending out initial invites this weekend 1/13/17, though you can continue to sign up after that time obviously.


Originally published at Speculate Freedom.