IEOs (Initial Exchange Offering) Hype or here to stay?
By Andrew Wong on ALTCOIN MAGAZINE
Introduction
The 4th quarter of 2017 saw a significant rise in the number of crypto enthusiasts. This upsurge in interest brought crypto market capitalization to an all-time high of $830 billion in early 2018. At this time, bitcoin early investors had seen a huge return on their investment. Mainstream media picked up on this craze and everyone was in the lookout for “the next bitcoin”. As a result, startup companies from multibillion industries such as banking, supply chain and fintech entities started offering initial coin offering (ICO). Since then, every coin offering has presented itself as the next big thing by claiming their ideas will revolutionize their respective industries. Investors willing to participate in these ICO’s are required to send their funds to a company and in return receive certain number of tokens speculated to increase in value with time. The distribution of the coins to the holders forms the token economy where the usability and utility will determine the value of the asset. On the other hand, the digital asset developer has the role of ensuring the security of the ecosystem but this has proven to be big challenge for most companies. As a result most projects have shifted from ICO’S to IEO’s where the exchanges now have the primary responsibility of ensuring the asset security.
Current Overview of IEO
Just like the Initial Coin Offering (ICO), the IEO is where a startup company is selling tokens to potential investors in order to fund their project. The only difference in this case is that IEO startup will depend on an exchange to conduct the crowd funding and marketing process. The developers are tasked with the responsibility of creating the token and sending them to the exchange before the initial offering commences. This will only happen if the two parties have agreed on flat fees and marketing plans. After agreeing on these terms, the developers/ startup managers must state their soft cap and hard cap expectations.
Last few months has seen a shift in concept from crypto stakeholders. This includes investors, regulatory agencies and project owners who have seen IEO as the new way to go. The primary reason for this shift is the idea that exchanges are more trusted. This is evident as one of the most popular and successful initial offering of 2018 was an IEO. Bittorent is a perfect example that IEO might be the new way to go after having a successful campaign hosted in binance exchange. Other tokens such as Temco coins followed BTT lead and conducted an IEO at Coinbene exchange.
Understanding the Crypto Market
Crypto market is a highly volatile market where traders and investors experience drastic swings in both ways. This depends on the type of trader one is, either short term (day trader) or a long term trader (holder). Traders choose the currency they want to accumulate more (base currency) and trade it against other currencies. The average crypto day trader aims between 5% to 10 % swings. One can only predict the above swings either through fundamental, technical or sentimental analysis. Most day traders are known to combine technical and sentimental analysis to carry out their trades. On the other hand, long-term traders normally use fundamental and sentimental analysis to decide the coin they are going to hold.
The last 2 ½ years have seen most turbulent movements in the market since the conception of crypto markets.
2017 Market Analysis
The above graph by coinmarketcap.com shows the growth in the market from tens of billions to hundrends of billion within a space of few months. 2017 had slowly started but Q4 saw a significant rise in volume and consequential rise in market capitalisation. At this time the market hit its all time high of $800 billion. During this period, most analysts concluded that the crypto market was overbought and expected a dip in prices
2018 Market Analysis
Q1–2018 picked up from the 2017 Q4 and started at a high for the first two months. However , both fundamental and technical indicators showed a potential dip in prices for the subsequent months. If you look closer to the 2018 graph below , the market has been on the decline since it hit the peak. People who bought at the peak months have been forced to hold hoping for better prices but others decided to liquidate their assets along the way.
Overall Market Analysis
The above graph shows the market movement since the early 2013 to early 2019. As you can notice, the first 4 years were characterized with low volumes and low prices. Volume started to pick up in the late 2017 and at this time the prices skyrocketed. During this period the market was overbought and 2018 saw a significant decline both prices and volume. In each of the last three quarters, the market has been hitting newer lows every month and at this time the market has been technically oversold. Most analysts and speculators have been describing this time as the best accumulation period for potential rise in prices.
Probable Future Impact of IEO on Crypto Market
· There will be more credibility- this means less scams as popular exchanges will only accept and host credible projects. It will be rare for the Binance and Bitrex of this world to host scam startups as they have better resources of doing due diligence. This will mean crypto investors will be less worried of falling into traps of cons and scammers. The long-term impact of this will be increased crypto market integrity where many people/firms will be willing to invest their cash.
· Decrease in cases of Price Manipulation- in early 2018, there were multiple cases of price manipulations where the ICO whales dumped their coins hence pushing the price down only to buy them lower. This has repelled people from participating in ICO as there is fear of manipulative practices. With IEO, this will be controlled as these exchanges have technical resources to detect and stop price manipulations. Fierce measures against the price manipulators might also be effected and this will highly minimize the number of firms/individuals willing to play around with the prices.
The above impacts will also attract institutional investors interested in initial offerings. Price manipulations and scams have been known to be the key factors keeping both institutional and individual investors out of crypto. IEO will solve this problem and we might see flow of funds from these investors to the crypto market.
Conclusion
Crypto market is a fast paced market accompanied by rapid price changes and technological developments. This does not mean the market is perfect as it faces new challenges and threats every day. IEO solves most of these challenges faced by both the startups and the users. It offers the project owners a chance to market their products efficiently without having to worry about proving their credibility. On the other hand, the users do not have to worry (as much) about scams as the exchanges have the resources to do effective due diligence. At any rate, this marks a positive sign for the crypto market aiming to attract investors who are still undecided on the long term viability of cryptocurencies.
