ICOs of 2017: Time for a check

Analysis: Forbes, EY take a look at big Crypto ICOs of 2017. How are the projects progressing? And, of course: Where is the money?

What it is: An ICO is short for “Initial Coin Offering”, a term used in the world of crypto currencies. The idea goes like this: A company has a good idea for a product or a platform. Instead of going to investors they offer to sell “tokens” or “coins” which represent a stake in the project.

Should the project be successful these tokens might rise in value. So, an ICO is a speculative investment, which might or might not provide a return. Be aware that there is no regulation, no oversight – which makes an ICO attractive to agile, smart entrepreneurs. And, that is a fear by many, being unregulated there is an open door to funnel the money away and simply vanish with the loot.

More than 800 ICOs: Since 2017, when the concept was introduced, there have been around 800 ICOs, which raised 20 Billion US-Dollars, real money which was converted into crypto currencies. Many of the ICOs where oversubscribed, a result of the quick rise of values for many crypto currencies, specifically in 2017.

Forbes now took the time to review some of the biggest ICOs one year later. The article is highly informative, putting a current perspective on the status of some of the projects.

Timing is everything
One insight: Participating in ICOs was profitable (by book value), but simply keeping an investment in bitcoin would have netted a much larger profit.

 “As an investor, if you had purchased all 10 of the largest ICOs during the token sale, you would have fared well through the middle of October 2018. A $100,000 investment would now be worth $160,936, compared with $113,722 for the S&P 500. But six of the 10 have negative returns since their ICO, and one has mysteriously vanished. If you had simply sunk your $100,000 into bitcoin, you’d have $264,417.” (Source: Forbes)

This applies for early investors, who – like in an IPO participated in the ICO before the coins were available on trade exchanges. Investors who would buy into 141 of the largest ICOs of 2017 would see their value fall – “86% are trading below their listing price, and 30% have lost almost all their value”, based on an analysis by Ernst & Young (EY)

The Forbes article goes on to take a deeper look into specific projects. One prediction and outlook, taken from the report: “2019 will be the year of the lawsuits”. 

The Bloomen take

  • ICOs are just one instrument to get funding for an idea. In 2017 there was a window of opportunity to use this method, and quite a number of projects jumped at it. But it needs to be understood: Getting a company financed is just one step of many. 
  •  With no regulation ICOs might get a bad reputation over time, if scams result in loss of money, which will almost surely happen from time to time
  • For the legitimate projects there is still the market risk – which applies to any company or project, before and after an IPO on the stock exchange or an ICO: That is that the idea or service simply does not work.
  • Now is the time to take a hard look at ICOs and how they proceed. Any company operating in this space must communicate to investors that quick gains are the exception, not the rule. Most such investments will develop real value (beyond speculation) only after three or even more likely five years of operation.

Photo by Jonathan Chng on Unsplash