Bulls. Bears. Regulation. Fear. Uncertainty & doubt. All of these are synonymous with traders’ experiences in the markets. All are amplified when applied to the experience in the cryptocurrency market.
With a solid 18 months of exponential growth in the cryptocurrency market, investors looking to tap into the opportunity are always wondering: What’s next? Where’s this taking us?
While no one has the magic formula, the early trends in 2018 suggest that there are changes that early ICO investors may want to be mindful of – allowing one to adjust his or her strategy as necessary. Here are some of the top Q2 2018 adjustments that will influence how investment in ICOs will transpire over the next two quarters:
While regulators have not released or created official guidelines on regulation, the entire industry is inferring the same thing: regulation is coming. One of the trends that savvy ICOs are tapping into is the securitization of their token offerings. Azbit and tZERO are among the companies that have gone with the trend and introduced security tokens as part of their offerings.
Because this move towards security tokens is so significant, large platforms have been quick to announce their availability. NewChip, for example, now offers security tokens on its platform. Services like Securitize have sprung up to support issuers looking to tokenize assets.
Applying traditional market rules and regulations to token offerings in the hopes of getting ahead of regulation is something that investors will need to be mindful of. If regulators begin cracking down on ICOs, investors might choose to transact on exchanges such as VRBex, a regulatory compliant cryptocurrency platform. Services such as Property Coin have stayed relevant to the changing paradigm by creating a security token which is compliant with Regulation D strictures in the USA and Regulation S outside the country.
Along similar lines are growing trends to offer yield or dividend payouts to certain tiers of the tokens that are offered by an ICO. Each issuer makes independent projections on how payouts are calculated and distributed among investors. These dividends take on different forms based on the nature of the offering, including profits from mining operations, income from an appreciation in the value of the token, and so on.
Envion, the creators of the EVN token, announced dividends to token holders based on profits from mining operations. The company engaged one of the Big Four auditors to be transparent about revenues and how they would trickle down to investors.
Investors seeking regular yield or income should be wary, however. While this trend is becoming more prominent, so are the false promises of consistently high payouts. Any guaranteed or astronomically high return on investment, especially over the long run, should be a red flag. Investors in PlexCoin learned this the hard way when the SEC clamped down on the operation, which had promised a yield of 1,354% in under a month.
As they say – the devil is in the details – and investors would be wise to dive deep into the details of any yielding ICO. Clarity and transparency are the two main things to watch out for when investing in a dividend token. First, it is essential to have clarity on how issuers plan on generating revenues using investors’ monies. Revenues don’t necessarily imply profits, so one must take into account how transparent the company is about costs such as maintenance, electricity, and so on. Envion attracting a Big Four auditor is the kind of move that should inspire confidence in a dividend token.
Accredited investors only
Yes, everyone is talking about regulation. And while the industry patiently waits, blockchain companies looking to raise capital in early rounds are increasingly focusing on accredited investors only. They seek to mitigate risk by restricting access to high-risk offerings. Telegram chose the “accredited investors-only” route in an ICO, which raised over a billion dollars, and was then called off.
Welcoming only accredited parties is a double-edged sword. While it does minimize the risk for the underlying blockchain company looking to raise funds – it also eliminates the ability for non-accredited investors to gain access to potentially beneficial, or high-yielding projects.
With investing rounds such as private, whitelist, and ICO, those looking to get the earliest access will increasingly be limited by their accredited status moving forward.
The additional movement towards hedge-fund style investment vehicles will offset this type of restriction but will, naturally, reduce one’s ability to profit.
Larger raises – Lower multiples
The year 2018 has set a precedent in a number of ways. Aside from Q1 bringing more investment in the ICO world than all of 2017 combined, two companies have raised over $1 billion in ICO capital, much to the undoubted dismay of traditional markets.
Telegram sold out a seemingly oversubscribed private round at an estimated $1.4 billion. And EOS – a great idea without a platform – has raised an astounding $4 billion. As the potential for capital raises becomes greater and greater, we should expect to see lower multiples on ROI – i.e., “no moon”, “no Lambo” ICO pump-n-dumps.
As raise sizes continue to grow, we will most likely see tightening requirements that are both self-imposed and government-initiated – accredited, geographic, amount invested – as the industry starts to mature.
Furthermore, larger raises will attract the eye of larger companies looking to take advantage of seemingly easy capital to fuel their business. Meanwhile, investors will need to maintain a keen understanding of the tokens they are purchasing, the potential returns they can get, and the requirements they’ll have to overcome.
While the cryptocurrency bear market lingers, and the ICO landscape continues to shift, investors will want to keep a close eye on the trends in the marketplace. As much as decentralization is the “goal,” it seems that we may be moving closer and closer towards traditional market standards such as asset-backed securities, high-requirements to invest in ICOs, and regulatory oversight.
With that being said – there is still plenty of opportunity in the market for investors who are willing to successfully navigate the landscape. The year 2018 alone has already seen 440 ICOs which raised over $10 billion together. With the market being so saturated, it takes a judicious investor to make returns consistently. Success takes both primary research – think team, traction, token economics, etc. – as well as some help from the community at large.
Investors can also gain valuable insight from engaging with the cryptocurrency community online. Various crypto-specific forums are a way to keep your ear to the ground to help quickly spot red flags and positive signs. If investors can continue to do the basics right while keeping up with fast-moving developments around regulations, they will continue to make profits from ICOs in 2018.