On February 28th, the New York Times reported that the Securities and Exchange Commission (SEC) has sent subpoenas to dozens of people and companies behind the rise of initial coin offerings. While “cryptocurrency” has finally entered the public lexicon, ICOs are largely still a mystery. So what is an ICO? An initial coin offering (ICO) is a vehicle that cryptocurrency startups use to raise money by offering their own cryptocurrency in exchange for other cryptocurrencies or hard money. ICOs are also known as “token sales”.
ICOs vs. IPOs
An initial coin offering is similar to an initial public offering (IPO) but instead of offering shares for sale, startups offer their own cryptocurrencies. ICOs are a great investment so long as these cryptocurrencies continue to rise in value—however, as we’ve seen over the past few months, this is not always the case. Backers argue that ICOs are perfect investment vehicles because they are free from cumbersome regulations by the SEC; allow individuals to invest in opportunities that historically have been reserved for high-powered venture capital firms; and generate quick returns for investors. However, ICO-detractors argue that any investment that isn’t subject to regulatory guidance provided by an entity like the SEC or due diligence required by VCs should be viewed as extremely risky.
History of Cryptocurrencies and ICOs
The holy grail of cryptocurrency is of course Bitcoin. First launched in January 2009, Bitcoin was initially valued at around $0.003; by July 2010 one Bitcoin was worth $0.08; and by April 2011 Bitcoin had achieved parity with the US dollar. Spectacular gains and losses followed, as well as many ICOs which utilized BTC as the foundational investment currency. Here are a few of the notable ICOs that succeeded:
- July 2013, Mastercoin hosted the first token sale, raising over 5,000 bitcoins or the equivalent of $500,000
- April 2014, Maidsafe raised $7 million.
- July 2014, Ethereum raised 30,000 BTC ($18 million).
- June 2016, Waves raised $16 million.
- April 2016, TheDAO raised $150 million.
- March 2017, Qtum raised $15.5 million.
- April 2017, Gnosis raised $13 million.
- June 2017, Status raised $100 million.
- June 2017, Bancor raised $156 million.
- July 2017, Texos raised $232 million.
There have been plenty of successful of ICOs over the past 5 years. So why not get in on the next one? Unfortunately, while there were more than 900 cryptocurrencies on the market in 2017, more than half have already failed and others are simply scams. Here are a few of them:
OneCoin was founded in 2014 by ‘entrepreneur’ Ruja Ignatova of Sofia, Bulgaria. Ignatova claims to have raised $4.1 Billion Euros from an alleged membership of over 2.1 million independent affiliates. Affiliates are encouraged to join the company for a nominal fee, but must purchase a package in order to buy tokens that can later be exchanged for Onecoins. Packages range from 100 to 5000 Euros. There is in fact no evidence that the tokens were actually even created but ample evidence that OneCoin is nothing more than a Ponzi scheme. OneCoin is currently under investigation in India, Italy, Bulgaria, Finland, Sweden, Latvia, Croatia and Thailand.
Prodeum promised to “revolutionize the fruit and vegetable industry”. The startup pledged to build a new price look-up (PLU) code system so consumers can track where their fruit and veggies came from. Prodeum abruptly disappeared after raising $11, yes that’s eleven dollars, in its ICO. The company website virtually disappeared on January 28, 2018.
Confido raised $375,000 through an initial coin offering in November, 2017. Advertised as a “trustless escrow payment solution using smart contracts with a unique shipment tracking feature,” the company attracted much interest in ICO circles. Two weeks after the ICO the entire Confido team vanished, as did its website, Twitter and Facebook pages.
Arise Bank’s planned ICO was shut down by the SEC in January, 2018. AriseBank allegedly used celebrity endorsers, including boxer Evander Holyfield, and claimed to raise $600 million of the firm’s $1 billion goal for AriseCoin. “We allege that AriseBank and its principals sought to raise hundreds of millions from investors by misrepresenting the company as a first-of-its-kind decentralized bank offering its own cryptocurrency to be used for a broad range of customer products and services,” the SEC’s co-chair of enforcement said in a press release. “This is the first time the Commission has sought the appointment of a receiver in connection with an ICO fraud.”
Should You Invest in Initial Coin Offerings?
So what to do? Are ICO’s fraught with fraud or potentially a enormously lucrative investment? We at MLM News Report firmly believe in due diligence. Ask yourself these questions before investing:
- Is there a market for the product?
- How does the product work?
- Who are the key players, their experience, their advisors?
- Is it legal, is there potential or pending litigation?
- And most important of all, how much can you afford to lose?