Ethereum Has an ICO Problem

Initial Coin Offerings (ICO’s) are raising hundreds of millions of dollars on pretty much hopes and dreams, using an Ethereum platform which is in its infancy. (Some ICO sales even jammed up the Ethereum network). I say hopes and dreams because despite raising mounds of cash they aren’t near releasing product. Seriously, here are just a few:

  • Tezos currently raised >$200 million, and the funding isn’t over yet
  • Bancor raised $153 million
  • Block.one / EOS raised $185 million

The total amount raised in ICO’s in 2017?

>$798,251,174

That is staggering.

How Initial Coin Offerings Hurt the Ethereum Price

Raising “cash” isn’t really the right word. They’ve raised heaps of Ether, which they need to sell in order to get cash. What does this mean? You have hundreds of millions of dollars in Ether either being sold, or potentially being sold.  Its quite possible these companies only sell portions of their holdings, or even none at all. However, these companies need to use the funds to hire developers, buy computers, or just take exotic vacations. (Remember, there are no regulations in ICO land.) Its therefore a reasonable assumption that there is a good amount of Ethereum supply created from this.

The ICO’s need to start adding actual value to the ethereum network. They need to provide a service thats good enough to bring new people into Ethereum. This would raise demand for Ethereum and should raise the price. As of now this is all just a transfer of wealth from existing ETH holders to various “start ups”, with the hope that value is created at some point in the future.

Here is a beautiful graph that lays out how much has been generated by ICO’s in 2017:

ICO Sales by Month

For sake of argument, lets just say that all of the funds will be used for legitimate business purposes. Again, they need to sell Ether to get cash to buy stuff or hire people. This means you have many sellers that have a desire to get out, for which Ethereum needs aggressive buyers. If the sellers are more aggressive than the buyers, you get a price drop.

If you use google trends as a proxy for Ethereum demand, well, you can see why the price is currently ~$250 down from $400 a few weeks ago.

ETH is trending down on google.

Notice a trend? Both peaked in June 2017. What about the Ethereum price? Peaked in late May…just before the huge ICO month in June. I can’t say for certain that the two are related, but I’d speculate there is some correlation for good reason.

Ethereum Price July 2017

Short Term Ethereum Price Forecast

First, Ill state I have no clue where ethereum prices are going. I also own ethereum. Also, the short term picture is different from long term. Long term I have high hopes, but this is about the next few months.
To recap:

Where does this leave us? Hard to paint a pretty picture there. With more ICO’s coming daily there will be more ETH supply from companies needing cash. Eventually one of these will turn out to be a “killer app” or at least an app that maims. This would draw actual users to Ethereum, as opposed to speculators. Who knows when this will happen, but I suspect within the next year well see the technology start to move up towards the hype. This would in theory bring in new capital and get the Ethereum price moving in the right direction again.

 

ICO’s – the More I Know the Less I Like

A very interesting question came up on Reddit today:

What happens when one of these ICO companies get bought out?

I hadn’t thought about this. Apparently there is no equity stake involved when buying tokens.

When companies issue tokens, they collect the money generated by the tokens. But they often owe you nothing in return (you have to read each ICO whitepaper to be sure of what you get).

But what happens if they sell the company? There is no mention in the token whitepaper aka terms and agreements about equity.

Read the Unikorn whitepaper launched with Mark Cuban: Its here.

Nothing in there regarding a sale of the company, but they do clearly state that benefits are, well, speculation that the price of the token will rise:

UnikoinGold holder benefits:
1. Granted bonus UnikoinSilver when they create a crypto-wallet
2. Granted UnikoinSilver when they bet with UnikoinGold
3. Opportunity to purchase additional raffle tickets for prizes using
their UnikoinGold
4. Opportunity to bet on on the most immersive skill and spectator
esport products, some of which will be exclusive to UnikrnGold.

What will they do with the money:

Budget Allocation of ETH Raised
5% Contractors
8% Contingency
12% Marketing (mostly organic)
15% Administration
60% Platform Development

Token Distribution
Total Tokens: 1 Billion
Partnerships & Marketing: 15%
Unikrn Betting Reserve: 15%
Initial Token Sale: 20%
Unikrn Internal: 50%

So the actual investors keep most of the tokens and only roll out 20% to the general public. I’m sure as the price rises they eventual cash out. Really its 100% free capital to the company. Actually, its more than that. The investors are getting free money, too. These tokens are fabricated out of air and nothing stops them from issuing more in the future or dumping a bunch on the market, or simply exchanging their tokens for Ethereum and cashing out.

Its really a brilliant model for compaies looking to raise capital with no strings attached.

 

Mark Cuban – Selling Wands to the Bubble Blowers

Cuban owns part of “Unikrn” a sports betting platform. Hes going to launch an ICO (initial coin offering) around August.

This is the same guy that called bitcoin a bubble just a few weeks ago:

He thinks crypto is a bubble so then whats he doing? Offloading the company at peak crypto valuation? He put $7 million into this company a year ago. Just about anyone with just a whitepaper and a website can pull in 10’s of millions – so this seems like a pretty smart move on his part. Offload it on the suckers.

He’s been smart with timing in the past. In the 90’s with a few of his tech startups, selling Broadcast.com to Yahoo for over $5 billion.  I don’t think the Unikoin ICO will fetch $5 billion but its a beautiful way to generate some cash.

Good for him. And if you buy into the ICO and it doesn’t go well…you can’t say he didn’t warn you.

The Unikoin Gold whitepaper is here.

This Could be Big: Sh!tCoin ICO

In this current ICO market I wouldn’t bet against it receiving full funding.

Sh!tCoin.me.

This is my favorite part:

1 ETH is worth 40,000 SHT. If the fifth stage hidden cap is reached, the ICO will continue for an additional 120 minutes or until the value of ETH contributed exceeds the Global GDP – whichever occurs later.

Shitcoin ICO
Shitcoin ICO