CRYPTO-CURRENCIES NEWS: Is It Profitable To Speculate On The ICO?
With the development of block-technologies, a new "hot" way of investing becomes a reality.
On April 19, Humaniq, an application for mobile banking based on Ethereum , which was the last startup on a blocker who achieved the goal of using ICO fundraising ( initial coin offering or initial offer of tokens) , raised $ 3.9 million in the Pre-seed stage, created a provably unique Tokens and opened their sale. A week later, the whole industry was surprised by Gnosis , which collected $ 12 million in less than 15 minutes, putting on an online auction 5% of the token of its decentralized application for forecasting markets .
But these are not the only projects that tested this model. CoinDesk's data show that in 2016, ICO attracted almost 50% of what this year started startups with the help of traditional venture capital firms. In view of the fact that more than 75% of the participants reported that they invested from financial or speculative considerations, such an increase in interest aroused concern .
Although high-risk and high-yield investments make sense for those who want to be at the very origins of the new trend, the lack of structure, the relative novelty of the industry and the opacity of many ICOs create an alarming environment.
Next popular currency
One of the most significant problems of speculation is investing in projects that are no different or, worse, poorly designed or implemented. To explain the danger of such speculation, let's look at the block-applications in the context of the infrastructure.
Unlike Web 1.0 and Web 2.0 applications - such as Facebook, Pinterest or Google - that are a "thick" application-level set-up, built on the "thin" HTTP or TCP / IP protocol layer, the block-based applications are built on a "thick" Or multifunctional, block level and relatively "thin" application layer.
This means that, while the infrastructure is crowded with innovators, applications can migrate to another block, if successful. Some applications have already switched to Ethereum, referring to its greater popularity in comparison with alternatives.
However, some people have doubts about the number of applications launched. "The spread of the ICO can be compared to the booming application of the early 2010s," said Brad Hines, a startup consultant and founder of the online store NerdPlaythings.com. "The problem is that we are now dealing with hundreds of crypto-currencies, many of which do not differ from each other."
Hines also noted that not all ICOs are successful, and many of them are removed from stock exchanges. In such an environment, a proper understanding of the investment object is important. However, here the difficulty lies in the lack of a real requirement for entrepreneurs to report the risk factors associated with the ICO. As shown by the failed project The DAO , the developers themselves may not know about what can go wrong.
This complicates the analysis of applications not only for those who are not a specialist in crypto-currencies, but also puzzles professionals.
"Thanks to the stories from the category" The Bitcoins that I bought in 2012, now there are thousands of dollars! "Now the desire is widespread not to miss the next popular currency," added Hynes. "Now the number of crypto-valued clones is growing faster, so to expect their rapid growth - at best, delusion."
Fear of missing an opportunity
Nevertheless, there is an argument that the ICO model is simply in the stage of rapid iteration, and that over time the process will become more standardized and less risky.
"There is no generally accepted best practice for such sales," said William Mougayar, founder of Startup Management and author of The Business Blockchain.
"Entrepreneurs see that they can quickly raise funds and aim at high profits," added Mougayar.
This structuring of assets makes speculation particularly dangerous, since a mixture of factual and hypothetical market valuations can mask characteristic signs of real viability and future asset performance.
Nevertheless, some write it off at the expense of the developing market.
"The higher you climb, the more you will fall in case of failure of these projects. Now everyone has high expectations, "Mugayar said.
Liquidity ruled by the ball
With all this, it's easy to say that speculation is bad, but it will be a strong understatement.
Speculation is important to increase the liquidity of the asset. This is relevant for those assets that otherwise would suffer from a lack of publicity. Speculation stimulates the trading volume of the asset, which is important to maintain the liquidity of the product - or access to buying / selling without directly affecting the demand or price of shares.
For example, someone has a conventional car for $ 30 thousand. A potential buyer has only $ 12 thousand on hand and a collection of comics for $ 20 thousand. The collection is currently illiquid, because it can not be used directly to buy a car. The buyer needs to find someone who wants to buy a collection - probably at a discount, obviously to the detriment of a potential car buyer - and he will be able to buy a car only after completing the transaction with the comics. Perhaps there is a comic book market, maybe even quite active, but at the moment it is not available to the buyer.
And now imagine that there is a speculation in futures for comics, associated with the hype around the expected season of high sales. Our potential buyer can sell the speculator at a price close to expected, and buy his coveted car. In such a tightly intertwined market as the crypto currency market, the liquidity of one asset affects the trading volume of others.
For example, speculation on a new bitcoin project based on a block-account may cause a sharp rise in the bitcoin price, because the project's tokens will be directly exchanged for bitcoins (trading is more common). Improving the liquidity of the project improves the pricing of other available tokens, which leads to an increase in the trading volume in the entire market.
Speculation and opacity
Speculators also help to regulate the manipulation of prices.
Take, for example, Yasuo "The Copper King" Hamanaka. At some point, he controlled 5% of the world supply of copper, being the leading copper trader in the Sumitomo Corporation. He is responsible for $ 1.8 billion (with losses exceeding, according to rumors, $ 4 billion) in the unauthorized trade in copper.
Sumitomo did not have its own copper mines. Hamanaka successfully manipulated the copper market by buying copper futures at a low price, holding a large percentage of stocks outside the market and creating an artificial deficit to raise prices.
Working through intermediaries, Hamanaka managed to ensure the opacity of his trading strategy. The Hamanaki affair was exposed by the pressure of speculators - such as George Soros - who suspected artificial manipulation of the offer, and Hamanaki's refusal to accept losses after the collapse of the copper market.
This is how regulation works in commodity markets. There are fears that such practices are possible in the market in question. For example, entrepreneur Charlie Schrem offers a reward to someone who proves that some ICOs have been unfairly reporting on their funding.
"I will pay a reward to someone who will check the top 50 crowd-money-holders and find out if any money has returned from the final address to the smart contract," he said.
Not quantity but quality
Everyone hopes that the industry will develop. It is necessary to shift the focus from apologists, fanatics and idealists to the general public, so that people can trust this technology more and use its potential.
"Not all ICOs are good for the industry, but high-quality - yes. Whenever we manage to bring together new people and new investors and tell them about our new money, it's good, "said Alan Friedland, founder of Compcoin and Fintech Investment Group.
Friedland expressed his desire to see the effect of the flywheel in the industry when high-quality companies will attract high-quality entrepreneurs. However, he cautioned that now it is necessary to test the responsibility of those who managed to use the model.
"Investors should know what they will be given participation in these projects."
