Disclosure: Nothing in this blog should be taken as investment advice. Do your own research. This blog is supported by advertising and affiliate links... Links to products and/or services on this blog may include links to affiliate programs that provide commissions to this blog. All of the content in this blog is 100% my own opinion.
Could the simplicity of cryptocurrencies and ICOs eventually replace stocks and IPOs?
Who knows what will happen in the long term. In the short term, though, I’ll wager that there will be lots of… to paraphrase the eminently quotable Clubber Lang…
Scammers Are Ruining the ICO Party
Just today TechCrunch wrote about a Lithuanian scammer who launched a token called “Prodeum”. The concept behind the token was to track every piece of “food” on the blockchain.
Sounds totally investable so far.
The guy followed the ICO hype playbook… 1) Create a website. Check. 2) Publish a blockchain technical whitepaper. Check. 3) Boast about the team. Check. 4) Hire pretty girls with big boobs on Fiverr to hold a banana and write the name of the token on their chests. Check. 5) Send this out over social media. Check. 6) Proceed to raise tens of thousands of dollars from idiots who “invest”.
He then disappeared…
But not before leaving a one word eulogy on the ICO website:
According to TechCrunch before the scammer bid his final farewell, he reappeared on Reddit to (kind of) apologize. But he’s not providing any refunds to those who were bilked. He even claimed to have pulled this stunt several times in the past.
Of course, gullible people who use hope as an investment strategy will get fleeced by scammers.
So, Will ICOs Replace IPOs?
Unfortunately, it is a truism that anything sufficiently technical, when framed through the lens of potential profit, will seem like an investment opportunity to non-technical people.
Whether it’s “tracking food” on the blockchain or providing a way for people to pay for blockchain porn, each scam puts ICOs closer to regulation.
Every “prodeum” that pops up on the Jay Clayton radar pushes the SEC closer to making ICOs illegal without proper guard rails.
In the meantime, while these things are still happening, there are three things you can do to make better cryptocurrency and digital asset investing decisions:
1) Use Trusted Third Parties:
Irony alert! Reliance on trusted third parties can feel “wrong” in the crypto age. Certainly so amid the cryptocurrency commination by gurus such as Nick Szabo and Naval Ravikant.
However, crypto third parties can actually help you reduce risk while narrowing your investment choices. Coinbase is one option. Coinbase limits to four the number of cryptocurrencies and/or tokens you can choose from.
Also, hacks of crypto exchanges happens. At least Coinbase uses cold storage and has insurance that may help you sleep better at night.
2) Do Actual Research:
When considering an ICO, ask yourself… Is the company promoting this ICO a real company? What is the reputation of the founders? Does it even make sense?
For instance, Kodak recently announced it was releasing an ICO called “KodakCoin”. While it may be a publicity stunt by Kodak, at least you’ve heard of Kodak. Kodak (KODK) is a public company. You can look them up and read about analyst views of what they’re doing. And if a public company is planning an ICO, it might be better just to buy their stock.
Check out Overstock, the former Amazon competitor. Do some research on what Patrick Byrne’s plans are for that company. He believes in Bitcoin and is trying to recreate OSTK as a blockchain company.
Is OSTK a blockchain play? Does the CEO’s excitement about blockchain that mean Bitcoin will do well as an investment? Is Bitcoin the new gold? Is Bitcoin a non-correlated asset? Should you buy lap dances with Bitcoin? Who knows?
There is a lot of good research on Bitcoin, the grandpapa of cryptocurrencies. Marc Andreessen wrote an excellent article on it for the New York Times. Ark has put out some good research on Bitcoin, and there is plenty of speculation to read on Bloomberg and Seeking Alpha.
Read everything. And weigh the pros and the cons of everything.
3) Follow the Leaders:
Ignore the scammers and listen to the leaders in the cryptocurrency space:
These people have been involved in cryptocurrencies since the beginning, more or less.
Most of them are very bullish on cryptocurrencies because they are working in the space or have founded blockchain companies or are investing in them. These are the pros.
Consider all of their opinions.
And if you’re seriously considering investing in an ICO, good luck. Just don’t venture any more than you would be 100% OK to lose.