Welcome to the 15th Crypto roundup brought to you by HEAT.
The Tricky Market Timing of ICOs
The simple fact of the matter is, no one can predict the mood of the markets, yet it doesn't stop people from trying and believing they are the only ones who can. People who don't learn from history are bound to repeat it. We saw these market gyrations almost every year since ICOs and altcoins became a thing starting around 2012 with Mastercoin.
The beginning of the year 2016 saw a really nice bull market in cryptos and ICOs, with Ethereum riding high on its successes, and everyone and their dog building a "DApp" (Decentralized Application), whether there is a legitimate business case or not. That also fueled the rise of ICOs and the rise of million-dollar ICOs.
Now, as the year comes to an end, Ethereum hovers around less than half its peak value for the year, even as Bitcoin hits multi-year highs. The ICO market has dried up, and investors are not throwing money at every silly project with a supposed whitepaper (or surprisingly, in many instances even without a whitepaper).
Now, the ICOs aren't having as much luck. Gone are the days of raising $7.5 million in 15 minutes (FirstBlood, SingularDTV, etc.) without solid business models and plans. Today's investors are demanding a higher standard for the projects, and it is not surprising - the bubble cannot last forever.
Projects that are looking into ICOs need to be careful with their timing and not take the past as granted, both bull and bear markets. Focus on the idea and execution. The ICO is the fundraising part. The business needs to run as a regular business would. No more "free money".
Let's take a concrete example. By the way, we love the guys over at ICONOMI, so no hard feelings. For those who don't know, ICONOMI plans to build two products, an index and a performance fund (similar to a hedge fund) or cryptos, and take a fees out of this. This fees will be distributed to the ICN tokenholders. But take a look at this official ICONOMI reply as recently as last week:
The tokens are trading, the project has raised $10 million, but they still don't know how much fees they will charge. This is in addition to all the issues with index-construction such as re-balancing and criteria for changes in index constituents that have never been addressed.
Now ask yourself - would you buy an index fund where the fees isn't even disclosed? Would you invest in a company that sells index funds with indeterminate fees?
I hold that ICONOMI got lucky in getting their ICO done right at the tail end of the bull market. I bet there is no way it would raise $10 million in today's market. So remember folks, there is the element of luck.
And the Troubles Continue
The last roundup we covered Inchain, a blockchain insurance provider which had to refund all its backers because it didn't meet the minimum funding goal. Well, it looks like that would be the norm, rather than the exception going forward - at least when teams have that minimum raise bar.
Today, another popular ICO failed to reach its minimum target. This time it is ARK. The biggest sell was its 'SmartBridge' technology that was supposed to make it possible and easy to create cross-blockchain transactions. Earlier in the year, I have no doubt it would be able to reach its goal of 2000 BTC. But today, it failed to do so, reaching only 78% of that target.
On that topic, it is also very important to do ICOs right. And ARK made the classic mistake (classic because maidsafecoin should have warned everyone already with their own disastrous ICO) of using different bonus structure for different coins in the ICO.
They put a 120% bonus for Lisk donations, but only 20% for all others. This is almost never acceptable. Obviously most of their fundraising was in Lisk and with the drop in the price of Lisk, they suffered greatly. There is really no reason to try wacky ideas with your ICO especially in a bear market. Stick to the fundamentals, folks.
Meanwhile Ethereum Continues Its Downtrend
We don't know how long it will last, but ETH is sick lately. Quite sick, actually. And yes, it affects the ICO markets indirectly a lot too. This is because many new tokens are being released on ETH, their funding models are ETH-based, and their investor distributions (like Augur) are also ETH-based. We'll see how this turns out for the longer run.
This is not a very good graph for the second-largest cryptocurrency.
With that said, markets go up and down, and we hope Ethereum recovers stronger. All the planned and unplanned hard forks don't help I guess, but the people and technology is still solid.
But there is always such a thing as timing when it comes to drumming up support for your project. Joe Lubin, the ex-Goldman Sachs banker and essentially an ATM for all projects Ethereum via Consensys, published this article on Futurism about what VCs got wrong investing in Bitcoin. Yes, Ethereum and Zcash are promising, but the best time to publish this article was 3 months ago, Joe!