The new investing method is becoming real due to advances in the blockchain technology. Today we can say with confidence: ICO-investing is trending!
On April 19, 2017, electronic banking application Humaniq begins to use the raising funds process, called the ICO. ICO (Initial Coin Offering) - issuance and sale to tokens investors to raise funds in new projects and startups. The application provides pre-seed funding for $3.9 million and created unique cryptographic tokens that are already on sale. ICO-investing is trending!
A week later Gnosis surprised $12 million, which he received in less than 15 minutes, with only 5% of tokens.
But this is not the only project trying to test the new model. Data shows that the total amount of funds raised in the ICO in 2016 reached almost 50% of all startups received through a traditional venture capital firm. But in this case, more than 75% of participants reported that they invested for financial or speculative reasons. This growing interest is a concern.
The idea of investing with high risk and high return, apparently, makes sense for those who want to participate in new promising projects. However, the lack of structure and the relative novelty of the industry makes ICO a tangible contribution to the financial environment with some potential risks.
New "hot" currency
One of the most serious problems associated with speculation is dumping funds into projects that differ from each other. The situation is aggravated by the fact that many of these projects are poorly designed or not thought out enough. The danger of this speculation helps to understand the thinking on the blockchain application from the infrastructure point of view.
In this area, it is essential to properly understand the investment mechanism. However, the difficulty lies in the fact that there are no real rules that describe the factors associated with ICO risk. As an example, lead DAO project, which proved that team itself might not even know about all the situations where something goes wrong. It makes it difficult to check those who are involved in cryptocurrencies because it is not clear who is professional and who is not.
Hearing the echoes of rumors that bought in 2012, bitcoin today is worth thousands, many began eagerly to engage in new "hot" cryptocurrencies. As a result, the market produces an excess amount of trading that are just clones of each other.
The fear of losing
However, there is an argument in favor of the fact that the ICO model is in the stage of rapid iteration. There is also the belief that over time the process will become more standardized and less risky.
It is worth noting that the main ICO advantage is the velocity of circulation and access to capital. Sometimes ICO can provide seed funding for companies with blockchain in just a few minutes! As a result, the delivery speed and the hype around big ICO have generated profits fear loss among cryptocurrency entrepreneurs. Entrepreneurs see that they can quickly raise the money, and then just leave the project.
These assets structure and type makes speculation very dangerous because confusion between actual and hypothetical market estimates may hide signs of confidence in the real potential of the asset and future positioning.
However, some believe it is part of a growing and evolving market. But we should remember that the faster it growths, the harder it falls. Meanwhile, there is a spirit of great hope in the world of cryptocurrency.
Liquidity is a king
With all this information, it is too simplistic to say that all speculations are bad. Prediction is essential for improving the liquidity of the asset. It is especially crucial for assets that can suffer from insufficient public attention. Speculation stimulates trading volume of the asset that is necessary to maintain liquidity, and access to sell or buy without immediate effect, demand or product prices.
For example, speculation in the new project, which is based on the Bitcoin blockchain, can cause an increase in the price of bitcoin, as project tokens will sell for bitcoins. Improved liquidity in the project promotes the cost position in other available markers, which increases the trading volume in the market.
Quality, not quantity
Alan Friedland, founder Compcoin and investment group Fintech, said that not all ICOs are suitable for industry, only those of a high quality.
Friedland wants the industry to create a pendulum effect, in which higher-quality companies can attract more high-quality entrepreneurs. However, he warned those who are planning to use this responsibility model, stressing that investors should be aware of the risks that may occur in case of participation in such projects.