ICOs are another type of cryptocurrency used by companies to raise money. Investors receive distinctive cryptocurrency “tokens” through initial coin offers trading platforms in return for their monetary investment in the company.
Here in this article is everything you need to know about initial coin offerings ICO. initial coin offers are kind of a funnily named thing which is the initial coin offerings so essentially what’s happening as tokens are being created and they’re being sold to the public? So what you’re getting is you’re getting a cryptographic token that you store in a piece of wallet software and ultimately the value is determined by the value of the economy that’s being created by this entity. It’s not like when you get an IPO you don’t have a stake in whatever is behind it.
One of the big concerns that people have about coins and cryptographic tokens is that they don’t actually confer legal rights in most cases. So that’s pretty interesting and potentially concerning for people who hold them. Like Bitcoin, the value of the Bitcoin is what keeps the Bitcoin blockchain going, so the initial coin offers are the coins associated with those new ICOs are spurring new companies and if that company continues to grow then that coin price will increase.
There are really two classes of ICO tokens. One of them is asset-backed securities, so asset-backed basically is literally what it means which is there’s real estate back there or there’s some kind of fundamental pegged value of that token. It represents a physical or virtual good some kind of asset.
The other class is a utility token and that’s basically used to buy goods and services in some kind of like micro-economy. We’re seeing about 30 new icos launching per day. Year-to-date we’ve seen about three billion dollars go into the initial coin offers market so we’re seeing companies raising as much as 200 million USD per ICO and what’s interesting is that they’re raising it in Bitcoin and ether. The value of which also continues to rise. In one case for example EOS has probably estimated about 700 million USD that’s been raised as a function of the increase in the price of Bitcoin either.
Is that one of the things that are causing Bitcoin to go up that you in order to buy initial coin offers you have to use Bitcoin so all this ICO activity is actually increasing the price. So the most common platform is actually the Ethereum blockchain. So ether purchasing for the purpose of transferring into initial coin offers is definitely an economic driver for that, but I would say that there are actually much larger geopolitical fundamentals with respect to the price of Bitcoin itself and we are seeing a large movement with respect to the fiat currency to Bitcoin interface to crypto interface. S
We’re seeing a lot of net new hedge funds there are over a hundred crypto hedge funds that have emerged. Some of which I know a for that is at the 500 million u.s. dollar size so they’re fairly sizable fiat to crypto interfaces.
So if you missed out on the Bitcoin rally or you think maybe you did should everyone just go into these initial coin offers? It sounds like a really exciting thing that’s happening well. I think I’d like to be a little more cautionary about this one of the things that have happened is it’s such a popular fundraising vehicle because it has genetic roots with crowdfunding and so one of the problems is that everybody has like a cousin that is doing an initial coin offers and that is actually a little scary. I would probably stay away from most of these instruments. What’s happening now is that more and more kinds of whale class investors are diligence instruments and that’s actually very proper, and it’s actually interesting that the market is self-regulating so there are fewer and fewer retail investors that are randomly throwing cryptos at initial coin offers. Think is a healthy trend because These are, in my opinion, extremely difficult to analyze, and it is, in my opinion, the job of people who do that all day long as professionals, to understand the fundamental value of a particular ICO.
What are the types of flags that you should look for that don’t make sense this company shouldn’t be raising money this way. Well to me I’m really looking for a fundamental connection to the technology underlying which is blockchain. So to describe blockchain very succinctly it’s a really really slow database and the only reason you would want to use blockchain is if you didn’t trust anyone.
What’s the situation like that bitcoin is a perfect situation because you shouldn’t trust anyone with your money and so that’s what that blockchain is doing, but to underscore it like it’s a very slow database. So if you want a faster database you just have to find a situation where someone can be trusted to run it. When I analyze I see oh I’m really looking for kind of fundamental uses of the technology whether it’s relevant or not I feel like that’s it’s a key.
This general idea of like oh the blockchain can revolutionize everything and everything can be decentralized doesn’t necessarily make sense. No, although it is one of our investment thesis points that we are at a point of peak centralization and so it is the case that the pendulum in many cases can swing towards decentralization in a lot of infrastructures and that there are externalities which means that there are costs that people are bearing that they didn’t agree to bear in many many different kinds of systems.