So that was pretty weird, right?
If you’ve been reading my thoughts on here recently, you might have been tempted to follow me in on the Digitex Futures ICO this past Monday.
If you were, then the chances are you – like me – were disappointed to discover that it was sold out very quickly. Like. Very. Quickly.
The thing went live on the hour, and was full up by seventeen-past. Seventeen minutes.
My own ‘speedy’ attempt to take a stake was lodged at 1.22pm, five minutes after Ethereum’s smart contracts functionality had boarded and shuttered the doors and windows on the Digitex ICO.
It looked an appealing proposition, and so it proved. But why did that happen? After all, most ICO’s run for a week – or even a month – and not necessarily because the offering is dogpile.
Before I answer that, let me outline what an ICO is…
ICO stands for initial coin offering, and it is the unregulated digital/blockchain equivalent of what is known in the stock market as an IPO (Initial Public Offering).
Essentially, a startup – generally but not exclusively – seeks further funding to move beyond proof of concept and into full production of whatever service their business provides.
Coins, or tokens, are the units which power the services and they also represent equity stakes in them. A bit like shares.
But there is a big important difference…
ICO’s are, currently but probably not for too much longer, unregulated. This is a good and a bad thing.
It is a good thing because it means anyone can get involved without being a high net worth individual or an investment company.
And it is a bad thing because it means anyone can get involved without being a high net worth individual or an investment company.
In other words, the nanny state has let its guard slip – for now – in this area, so anyone who takes more than a passing interest in brave new worlds, and does a bit of digging (due diligence it’s called in the finance world, but I think I prefer due diggingligence), can stick a couple of quid – or more, or less – into an ICO they like the look of.
But… if you’re reckless or feckless you can also easily wind up potless.
There are scams in these waters. Not as many as one might imagine, but certainly enough for caution aforethought.
ICO’s are the first offering to market – Initial Coin Offering, the clue is in the name, right? – so they entice the would-be investor with the most attractive upside potential.
That comes with a commensurate clear and obvious risk on the downside. If you’re uncomfortable with potentially doing the lot, ICO’s are not for you.
I’ll say that again, because it’s really important. You could invest thousands, tens of thousands even, and lose every penny of it. That would be distressing, but it should never be a total shock.
If you’re inexperienced as an investor, I suggest you tread very carefully. Your appetite for risk is probably not the same as mine. Your investment tank may not have earned a portion for speculative status already, as mine has.
Please tread carefully.
OK, back to Digitex…
The thing with this particular ICO is that it was a small one, underpinned by some good marketing.
The lads behind it were only looking to raise seven million dollars which, in ICO terms, is not a lot.
And they put some cute content in place to help people visualize what the product is, and how there is a demand for it.
I recommended this because I fully intended to get involved myself. And I’m pissed off that I didn’t.
But there are plenty more fish in the sea.
There is not only one successful bookmaker. There is not only one successful stock. There is not only one rising cryptocurrency. And there is not only one successful – or investable – ICO.
There are tens of ICO’s a week. Which presents a problem.
How do we know which ICO’s are worth our attention?
I make no apology for showing you more caveats than an illiterate tie-seller (geddit?) because it’s your dough and I want you to do the right thing for you and yours with it. I certainly don’t want you to do what I do in the vain hope that it’ll come up smelling of rose petals.
With my dough, I set aside a bit to muck about in a vaguely scientific manner with things I understand more than the average bloke but not even remotely to expert level.
As I’ve said before, there has been a rising tide lifting all boats to this point, and that may continue through 2018.
And it may not. This year or next, the crypto space will start to sort its shit out. We will start to see winners and losers. The losers will go to zero. Their ICO funds will run dry and they’ll fail to secure further funding.
That’s showbiz. It’s why this is wild west territory.
But it’s also why it’s so exciting picking between the runners in each ‘sector’ field.
I cannot tell you which ICO’s are worth your attention. But these are things I look for when I’m considering an investment:
What are they actually trying to do?
Sounds obvious, right? But quite a few ICO’s are not trying to do anything more than ‘be the new money’.
Now, don’t get me wrong, I reckon that one or more – probably more – of the coins has a shot at being ‘new money’. I like bitcoin cash still, but perhaps not as much as I did four months ago. I still have about a third of my investment there. But that’s for another post.
The point is search for utility in an ICO: we want a genuine problem with a ground-breaking solution.
For example, how about storj, who do cloud storage (think Dropbox, Amazon AWS, or Google Drive, but without the big profiteering middle man).
Or loopring, who will integrate and homogenize the world’s crypto trading exchanges, creating essentially a single market for crypto trading.
Or, and I can’t remember the name of them just now – will post another day – the blockchain company who have an innovative solution to a growing problem for digital publishers.
The problem is ad blindness and, increasingly, ad blockers. The value of ad space on websites – even high traffic news sites – is reducing all the time, because we’re a) immune to ads and, b) taking steps to ensure we don’t see the feckers.
Anyway, these guys have come up with an idea whereby, rather than display ads as a way of paying journalists etc, publishers can siphon a tiny bit of processing power from the site visitor and put that to use mining cryptocurrency (or some other task of greater value to the publisher than its latent unused no-value to the visitor).
I don’t (yet) know the technical why’s and wherefore’s of that one. I don’t (yet) know the team behind it. Heck, I can’t even remember what it’s called! But I sure will be taking a deeper dive into their white paper. And in this paragraph, I’ve hinted at two other things I do when scouting an ICO.
2. Who’s on the team?
There’s a game of footy. Two teams line up. One of them has fancy tracksuits, slick mugshots and polished bios. The other has players I know; players I know can play.
I want to be with the latter. That’s not to say that the former, the fancy bios, cannot be a success – win the game in this analogy – but from an investment perspective if you know your team has experience, skin in the game, and a proven track record, you have a chance.
Ideally, we’re looking for a serially successful blockchain entrepreneur as an advisor at least. And we want hard core tech capability. Let’s take loopring as an example again.
Their tech top table has ex-Google, PayPal and Bank Of China senior staffers. And they are priveleged to have Da Hongfei (founder of the NEO blockchain), as well as VP’s and Chief Technical/Information/Executive Officers from some of the world’s largest companies, on their advisory panel.
That’s a big tick in the box of what remains a monumentally ambitious project.
3. Paper. White Paper.
It gets difficult here. There’s technical stuff to (sort of) understand.
All ICO’s publish a so-called White Paper: a document outlining who they are, what they do, how they’ll do it, and what purpose the coin/token serves.
If you’re planning to invest – and please excuse my frankness here – read the f’cking white paper!
At the very least it will help you understand some of the potential pitfalls of investing.
For instance, a good friend of mine who is rather good at this sort of stuff, Steve Brown, wrote about an ICO for Bankera on his blog. I trust his judgement so I took a look.
Product is crypto-based banking. There’s definitely a need for that.
Team looks well-rounded, if lacking in Premier League superstars (to my untutored eye).
White paper was a good read but did highlight what I consider to be the two biggest challenges – a. getting a full banking license (they already have an associate banking license) from the EU, and b. liquidity (getting enough deposits to make enough loans to operate as a successful bank for their token-holders).
There was enough in the combination of Steve’s recommendation and the established element of Bankera’s business – under the auspices of a related company called SpectroCoin – to justify a small punt.
This is the sort of company that probably won’t go to zero. It could be a big deal IF they can source that banking license – but their roadmap says that won’t happen until 2019, so it’s a wait and see play, regardless.
More likely, it’ll chip away off the back of its existing business model. Here, the downside appears to be limited – to some degree at least – whereas the upside has some fairly major hurdles still to overcome.
That’s the balance one needs to weigh up when looking at an ICO.
4. The Roadmap
Many ICO’s are barely out of the garage, let alone in the middle lane of the motorway of their development roadmap.
They all publish a roadmap – by this date, we’ll have done this; by that date, we’ll have x million users, etc – and some of them are a touch ambitious, shall we say.
Roadmaps are little more than timelines, and they need to be considered in conjunction with the team, the company capitalization (i.e. how much they’re trying to raise and what they propose to do with it) and, of course, demand for the product/service.
Digitex was ‘only’ trying to raise seven million bucks. Bankera has already raised 70 million euro (about 85 million USD) in an ICO scheduled to finish end of February, or when all the tokens are sold.
The former is a software platform where users will fund their trading with platform tokens; and some tokens have been held back for liquidity purposes.
The latter wants to be a bank, lending money. That means they have to satisfy international banking capital rules – i.e. they must physically have at least 20% of what they lend. Obviously, they need more capital.
But if a company starts off as a $100,000,000 ICO, how much expansion potential has it got? Can it be a billion dollar enterprise? If so, that’s 10x. Could it make five billion, 50x?
There are twelve crypto technologies with a market capitalization of five billion or more as I write. It would have been more last week, of course, and it may well be more next week.
There are 75 with a market capitalization of $100,000,000 or more. Out of the 1500 coins listed on coinmarketcap.com.
Put another way, does bankera have what it takes to be a top 75 coin… and break even? Probably, yes, because it has an existing user base of 400,000 and is opening 1800+ new accounts daily. It also has those ambitious expansion plans.
But to break into the top dozen it has a lot of work to do. Of course.
And the reality is that if the coin value doubles, that would represent a phenomenal return on investment in ‘old money’ terms. The additional risk of these new frontiers however means many players are engaging with an aspiration of a greater multiple.
Summing Up Time
How it ends, who knows?
But I do know this. I want me some ICO action.
Small pieces of a few, with one good winner paying for plenty of losers.
It’s how I bet racehorses, with a degree of success; and, while I obviously don’t consider myself to have the depth of awareness in this market that I do with the nags, I feel I’m asking the right questions to stand a chance.
My portfolio bottom line currently supports that perception. Currently.
Back to Digitex…
Now then, if you loaded some ethereum into a wallet ready for the big Digitex bonanza… and it didn’t happen… don’t worry.
And, if you fretted about the ‘crash’ this week with your money tied up, don’t fret (unduly). These are extremely choppy waters, where the waves rise and crash 35-40% four, five, six times a year.
If you’ve got the raw nerve to buy in a crash, you’ve made 25% in two days. And good luck to you. For the rest of us, there’s a very high likelihood we’ll ride this dip out and move into the next upward surge.
The evidence of Monday with Digitex, and the rest of the week in the crypto markets generally, is that the hunger for digital assets remains as strong as ever.
And there’ll be another Eye See Oh worth a second glance any time now…