An Initial Coin Offering (ICO) at a High Level

Bitcoin is the most popular cryptocurrency in the world and has grown in value from around $750 per bitcoin in November 2016, to over $8000 per bitcoin in November 2017. Bitcoin experienced a similar soar in prices in 2013, and this type of rapid growth in the cryptocurrency market has created a “gold rush” or, “coin rush”, of sorts. Some of the effects of this “coin rush” are that companies are implementing what are called “Initial Coin Offerings” or ICOs in order to raise funds for their project.

In essence, an ICO is when a business releases their own proprietary cryptocurrency, or “coins”, in exchange for cash or another cryptocurrency, which is typically bitcoin. Think of an ICO like a Kick-Starter campaign for tech backed with cryptocurrency, where the perks are a new proprietary cryptocurrency. An ICO is similar to an IPO, initial public offering, but without all of the regulatory hurdles that is typically entailed with an IPO and securities. There are less SEC hurdles to jump through when raising through an ICO.

In 2014 the Etherium project raised 18 million dollars’ worth of Bitcoin, at a price of approximately $.40 per Ether. In this example, Ether is the proprietary coin the Etherium project provided in exchange for bitcoins. Today, 1 Ether is worth nearly $480, which is a multiple of growth of nearly 1,200 times. $100 invested in Etherium (Ether) during their 2014 ICO would now be worth $120,000! But, the truth of the matter is most cryptocurrencies will fail, or the value placed on them during the ICO never fully realized.

The result of the success of Ether, and other funding successes from ICO’s has led to a flooded market, in which there are over 800 different crypto currencies with a total market cap of over $87 billion dollars. Technical companies, some more legitimate than others, have begun offering “coins” which are associated with the value of the project or company, or future value, much like issuance of a stock.

The result of a flooded market and the hype of “getting rich quick” means that there are a lot predators out there using the ICO model in an attempt to fund fake projects, or projects with little chance of success or history. Capital management groups strongly advise against everyday investors putting their hard-earned money into ICO’s, as many of these coins/companies will never realize the value of the investment, but know some will hope to strike it rich.

Cryptocurrencies continue to be a gray area in investing arenas, and recently the SEC has increased involvement, stepping up their game to catch small-time companies and fraudsters from taking advantage of the hype. The SEC recently issued an investor alert warning which provides additional details, including more information on ICO’s, Blockchain, and cryptocurrency.

The SEC’s bulletin can be found here:
https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_coinofferings

 

 


 

The face of money is changing, and things such as ICOs are evident of the coming of change. The switch to a global digital currency is inevitable, and will happen within our lifetimes. Regulations are likely going to be imposed with more and more scrutiny in the coming years which will help stabilize the digital currency landscape and reduce the risk of fraud. The tides of money as we know it are changing and uncertain, and while investment is very risky, the lucky few who pick correctly, will be very rich as a result.

 

 

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