There’s a new investment boom that might exceed the dot.com era euphoria at the turn of the century in size and scope. The explosion is in initial cryptocurrency offerings; or ICOs and it has the potential to transform a few shrewd investors into millionaires.
An initial cryptocurrency offering is the altcoin equivalent of an initial public offering (IPO) for a stock. An IPO is the first time that a stock appears on the market; an ICO is the first time a cryptocurrency is made available for purchase by the public.
The hope with an ICO; is the same as that attached to an IPO, that the offering will greatly increase in value over time. People buy an ICO because they think their money will double, triple or possibly quadruple in a few years or months.
Note, make sure you read our new Ultimate Guide to Making Millions with ICO’s by Ben Krypto, the owner of CryptoIncome.io, and guy who knows what he’s talking about when it comes to making millions with ICO’s.
IPO and ICO Wealth
Anybody who has been paying attention to the financial news for the past 20 years knows that IPOs can be a ticket to wealth.
A person that purchased a share of Google, now Alphabet (NASDAQ: GOOG), during the initial offering back on August 19, 2004, would have had two shares worth $1,874.68 on September 1, 2017, Business Insider reported. On that day shares Alphabet (NASDAQ: GOOGL or GOOG) were trading for $937.34 apiece.
A lucky individual that purchased Amazon (NASDAQ: AMZN) during its 1997 IPO would have paid just $18 a share, Investopedia reported. Amazon was trading at $978.25 a share on September 1, 2017.
Amazon’s stock value was so high that it made the company’s founder and CEO Jeff Bezos briefly the world’s richest man on July 27, 2017, CNBC reported. For a short period of time Bezos was worth $90 billion – because of stock, he gained from his company’s IPO 20 years earlier.
Bezos is far from alone, four of the 10 fellows on Forbes’ list of the richest men in the world for 2017, made their money from IPOs. They were Bill Gates; the world’s richest man and founder of Microsoft (NASDAQ: MSFT), Bezos, Mark Zuckerberg of Facebook (NASDAQ: FB), and Larry Ellison the CEO of the financial software giant Oracle (NYSE: ORC).
An Important Lesson about IPOS from Warren Buffett
The world’s second richest man, Warren Buffett of Berkshire Hathaway (NYSE: BRK.B) also made most of his money from stocks. Buffett did not make his money from IPOs – but he now admits not buying into some of them was a big mistake.
Back in 2004, Google founders Sergey Brin and Larry Page approached Buffett about buying into Google’s IPO, Warren told investors at the 2017 Berkshire Hathaway shareholders meeting. Buffett and his partner Charley Munger said no to Google’s IPO, a mistake they regret to this day, Fortune reported.
“I knew the guys,” Buffett said of Brin and Page. “And so I had plenty of ways to ask questions or anything of the sort and educate myself, but I blew it.”
At the same meeting, Buffett also admitted that not buying into Amazon years ago was a huge mistake. This means one of the most things you can learn from the world’s richest man is not to repeat his mistakes.
Buffett is worth $77.60 billion today, but he might be far wealthier if Berkshire Hathaway had invested in Google’s IPO. There is a strong possibility Buffett would be the world’s richest man, instead of the second wealthiest, if he had bought into the Google IPO.
ICOs are the New IPOS
Unless you have a time machine you will not be able to invest the IPOs, of tech titans such as Google, Microsoft, and Amazon, but you can buy into today’s equivalent – ICOs and cryptocurrencies.
The available data indicate that the growth of some cryptocurrencies exceeds that of any IPO. Back in July 2010, a Bitcoin cost just 7¢ according to 99 Bitcoins. By September 2, 2017, one was trading for $4,525.87 according to Coinbase. The earliest price I found for Ethereum was $3 on August 6, 2015, by September 2, 2017, a unit of Ether was selling for $335.36. Litecoin started trading for 7¢ on January 5, 2013, by September 2, 2017 Litecoins were valued at $75.17 each.
This astronomic growth explains why there has been so much interest in ICOs lately. Their recent performance actually exceeds the gains of many of the tech companies that were involved in the dot.com Bubble in the late 1990s.
Ethereum was able to deliver a rate of growth similar to what Google achieved in 13 years, in a little over two years. A dollar invested in Ethereum on January 5, 2015, would have grown to $649.72 by September 2, 2017.
Making a fortune in cryptocurrencies is no fantasy. The recorded growth in altcoin values, which is easily confirmed at websites such as Coinbase proves that it is possible for an altcoin to increase in value by hundreds or thousands of dollars.
How ICOs Work
An initial cryptocurrency offering occurs when somebody places a new altcoin for sale. As with an IPO, the promoters behind the ICO usually announce it to the media and spread a lot of hype around.
A few years ago ICOs were ignored because cryptocurrencies were worth just a few pennies apiece, but today they are big news. A few altcoins are now worth hundreds or even thousands of dollar a unit.
Investors are rushing to buy up new cryptocurrencies in hopes of finding the new Ethereum or the next Bitcoin. A few ICOs have attracted widespread attention because of their growth. The biggest success has been NEO, a Chinese altcoin formerly known as Ant Shares, NEO started trading with a value of $0 on September 9, 2016, by September 2, 2017, a NEO coin was trading for $30.29.
People rushed to buy NEO because of its similarities to Ethereum, and speculation that the Chinese government and central bank were behind the currency. As with IPOs most of the early value was created by speculation.
ICOs as a Fundraising Tool
Despite their speculative nature, ICOs have become a very lucrative and effective fund raising tool. Some companies are even using them to raise money for operations.
Companies are using such offerings as fundraising tool because there is a lot of money to be made from them. Around $1 billion was invested in ICOs during the first six months of 2017, Forbes contributor Laura Shin estimated. One offering that of the smart contract platform Tezos reportedly raised $232 million during the last week of June 2017.
A Singapore company called TenX was even able to raise $34 million in just seven minutes with its ICO, Bitcoinist reported. TenX needed the money to finance the launch of its digital wallet and debit cards that convert cryptocurrencies into paper money.
The investors were hoping that TenX’s PAY ICO will be worth big money someday because of its use in a digital wallet that can convert up to eight cryptocurrencies into fiat currencies. They think PAY will explode in value because TenX’s card is supposed to make it possible to spend altcoins like DASH and Ethereum at real world locations such as McDonald’s or the grocery store.
Other companies have jumped on the ICO bandwagon as well. Burger King Russia issued WhopperCoin a cryptocurrency that helps consumers buy burgers. A possible use for WhopperCoin is to enable Americans and Europeans to invest in Burger King Russia without violating U.S. or European Union sanctions against that nation. Another is a rewards point scheme to drive new sales.
Another example of ICOs as a fundraising tool is a company called Unikrn which is trying to developing a blockchain solution for gambling. Unikrn operates a sports betting site called Unikrn but it also created a cryptocurrency called UnicoinGold. The UnicoinGold ICO attracted the attention of American billionaire investor, sports team owner, and reality TV star Mark Cuban.
Cuban bought into UnicoinGold because he thinks there might be a lot of money to be made in sports betting. Like TenX, Unikrn was using an ICO as a fund raising tool in lieu of venture capital or a stock offering.
Yet another organization that is aiming to disrupt finance, and raise funds through a cryptocurrency offering, is Change Bank. Change promotes itself as a “truly decentralized global bank” that offers altcoin-based consumer solutions such as a mobile app, peer to peer to payments and a plastic MasterCard debit card. More traditional banking services such as checking and savings accounts, lending, and money-market accounts will be presumably made available at some point in the future.
Change wants to finance this network via a cryptocurrency called Change Coin; that will be made available through a Token sale on September 9, 2017. Change Bank is a great example of the inherent potential in ICOs. It will probably be the first of many cryptocurrency-based banks that will enter the marketplace via ICOs.
How to Invest in ICOs
The greatest appeal of ICOs is the ease of investment, which can also make them very dangerous. Here are some simple steps for buying into ICOs.
- Buy some Bitcoin, or Ethereum, because most ICO promoters only take payment in those altcoins
- If you buy cryptocurrency through a major wallet, such as Coinbase, you will have to get a user controlled wallet. Shin recommends My Ether Wallet, Parity, and the solution from info. Such wallets are necessary because services like Coinbase will not let you invest in ICOs
- Go to the website promoting the ICO or token sale. All you will need to do follow the instructions there and send your address.
- Buy your coins.
- Store your coins. Shin recommends that you store them in a hardware wallet like the Trezor or the Ledger Neo.
- You can also store the coins at an exchange. Some of the larger exchanges like Poloniex, Kraken, and Bittrex let you trade ICO tokens and store them.
- If you want to buy into an ICO that has already been held you can do so through an exchange such as Kraken, Bittrex or Poloniex. Poloniex and Kraken may support new coins if you ask.
- If you are planning to buy and hold your ICO coins the best place to store them is in a hardware wallet. It is usually a good idea to store the hardware wallet in a very safe place such as a safe or safety deposit box.
Watch Out for ICO Scams
The present-day ICO market reminds a lot of people of the IPO jungle of the late 1990s because it is full of scams. One reason why IPOs fell out of favor was that any scam artist with a compelling business plan could use one to fleece suckers.
Today’s fraudsters are doing much the same with ICOs. A number of high-profile token sales have been exposed as Ponzi schemes and get-rich quick scams. A Ponzi, or pyramid scheme is a scam in which a fraudster uses funds from future suckers to pay off earlier investors.
A prime example was OneCoin, a fraud shut down by police in Mumbai, India, April. The scammers behind OneCoin were able to rake in $350 million before they were caught, Atlantic writer David Z. Morris reported. OneCoin was supposed to be an advanced cryptocurrency – but it turned out to be only a sales pitch and an Excel Spreadsheet.
Con artists like ICOs because they are unregulated and investors are unfamiliar with them. The anonymity provided by Bitcoin and Ethereum also makes it harder for authorities to track down fraudsters.
Some signs of an ICO scam to watch out for include:
- Promises of an instant or quick payout. A legitimate ICO might not pay off for years because it is a new technology.
- Requires payout in a fiat currency, government-issued money. Legitimate token sales will only accept payment in cryptocurrencies such as Ethereum or Bitcoin.
- Outrageous claims such as “this will be bigger than Bitcoin” or “everybody who buys this will become an instant millionaire.”
- Lack of coverage in the established news media or in regular cryptocurrency news outlets such as Coindesk. You should be able to find several legitimate articles by professional reporters or writers on a real ICO. Fake ICOs will have no coverage or just press releases. Good news outlets to check for ICO coverage are Forbes and newspapers such as The Financial Times, The Economist, and The Wall Street Journal. One reason why scams get little coverage is that reporters might ask embarrassing questions like: “does this actually work?”
- Promises ownership or stock in the company this is illegal, unethical and a lie. Under current law it is not possible to transfer ownership via blockchain or ICO.
- Emphasizes vast new markets that make huge amounts of money
- Sets an unrealistic timetable or goals such as one million new users by next year
- Is not associated with established figures or companies in the cryptocurrency industry. Most legitimate ICOs’ websites will list advisors and investors with genuine investment, finance or technology experience such as CEOs, executives, bankers and college professors.
- Is promoted by celebrities with little or no knowledge or experience in finance such as actors or movie stars. Be real careful when actors promote something because they might be serving as paid spokespeople.
The Dangers of ICOs…The Risks
There are some risks when participating in from Initial Cryptocurrency Offerings that investors should be aware of.
The greatest of these perils is that ICOs can be a highly speculative investment. That means any profit that you might make may be purely theoretical. The currency involved might never make money or it may be years before it makes money.
Something to remember is that it took Amazon nearly 15 years after its IPO to become a profitable company. Unless you are a very wealthy person you probably cannot wait for 15 years for a return on your investment.
Another danger is that the ICO will lose much of its value before it takes off. The historical data indicates that most of the major cryptocurrencies have suffered through some serious downturns over the years. Bitcoin lost 50% of its value in December 2013, when a Chinese exchange closed.
That means any ICO investment is likely to be a roller coaster ride with a lot of ups and downs before the payoff. Risk-adverse people should probably consider something more stable such as direct investment in an established altcoin like Ethereum.
Lack of regulation and legal status are two more risks that you must consider. Limited regulation might mean that might be nowhere to complain if you get scammed and no way to hold fraudsters accountable. If there is no legal status you might not be able to sue to get your money back.
ICOs are Not Guaranteed Money Makers
Always remember that there is no guarantee that you will make money from a legitimate ICO. Even if something is a great idea it might not work, or might be ahead of its’ time. The online grocery delivery company Webvan was a great idea when it was founded back in 1996, but it lacked the technology or resources to make it work despite spending $1 billion.
Webvan went bust in 2001, with stock that was worth just 6¢ a share. That did not mean Webvan was a bad idea – it was simply ahead of its time. Today, giant corporations like Amazon, Walmart, Uber, Lyft, and Kroger are investing billions in online grocery delivery but it is still only available in a few cities.
Always keep Webvan in mind when investing in ICOs because even the best ideas can flop. The great application you buy into might the next Webvan, rather than the new Google.
Something else to remember is that it might take numerous attempts for a new technology to succeed. Thomas Edison had to test 1,000 different methods to perfect a working light bulb – many cryptocurrency and blockchain applications are likely to have equally harsh growing pains.
Another problem with ICOs is that the currency may not make a lot of money even if the company does. There might be other factors that limit the value of the altcoin. One of these is the fact that the altcoin will not confer ownership or equity to investors.
ICO Investing Rules to Steer You Right By
The basic rules that apply to all investing also pertain to ICOs. The most important of these is not to lose money.
The great American investor Benjamin Graham even taught that “Don’t Lose Money” was the important lesson an investor can learn. ICO investors should consider that rule carefully and implement it.
A closely related and equally important rule is not to invest money you cannot afford to lose. The best way to follow that rule is to only invest money you can afford to live without in an ICO. This might include windfall money, or a very limited amount on a regular basis such as $10, $50 or $100 a month.
If you’re having trouble covering the rent or meeting the car payment this month, you should not be investing in ICOs. On the other hand, if you suddenly get a hunk of extra cash that’s burning a hole in your pocket, an ICO might be a good use for it. Say if you win some money in the lottery, get a bonus at work, or sell that old record you found at the garage sale on eBay for a few hundred dollars.
A good way to make investing more enjoyable is to put a few dollars aside every week or month for fun investments such as ICOs. A fun investment is something that you might wish to play around with on the side such as an ICO.
Do Not Underestimate the Potential of Initial Cryptocurrency Offerings
There is another great similarity between ICOs and the IPO-based dot.com bubble of the turn of the century. The similarity is the vast potential of the underlying technology which is poorly understood, terribly underestimated and tremendously overhyped.
Many people turned their backs on dot.com and internet stocks because of the silly hype about them in 1999 and 2000. They dumped those stocks because the instant millions and vast markets they were promised did not appear. News stories focusing on over-promoted issues such as Pets.com and Webvan made the situation far worse.
This is why a great many investors stayed away from both Google and Facebook when they entered the market. It is also why ecommerce stocks such as Amazon have been such a hard sale.
Never let early or over-optimistic hype stop you from seeing the potential of an investment. A few of the ICOs out there have the potential to make a lot of money at some point in the future.
Some ICOs that Might Make a Lot of Money
There are some ICOs with a lot of potential to generate vast amounts of profits out there. The most promising are in the finance field, particularly those that plan to issue credit cards, debit cards, mobile wallets and bank accounts that convert cryptocurrencies into government-issued paper money.
The market for these products is vast because of the number of cards on the market. There were 751 million MasterCard debit cards in circulation outside the United States in June 2017, Statista reported. The same figures indicate that there were 1.334 billion in all kinds of MasterCard products circulating outside the United States.
Those cards processed $14.5 billion in transactions during the third quarter (July, August, and September) of 2016. Visa’s network was even more impressive than MasterCard’s. There were 3.1 billion Visa cards in existence on December 31, 2016.
Visa cards were accepted at 16,600 financial institutions, 2.6 million ATMs and 44 million businesses around the globe in September 2016, data from Visa indicates. That led to 141 billion Visa transactions during the year of 2016. Those transactions were worth an estimated $8.9 trillion and Visa reported a payment volume of $6.3 trillion for 2016.
If companies like Centra, TenX, Change Bank, Shakepay, and Uquid can capture just a tiny percentage of that business they can generate vast amounts of cash. This is why giant companies including PayPal are investing in startups like TenX.
Other ICOs that might be worth a lot of money are those targeting specific industries such as gaming, sports betting (UnicoinGold), restaurants, and ride hailing. Ethereum-based ICOs will be among the most lucrative because of the finance industry’s well-documented interest in that digital payment platform.
Another potential group of moneymakers will be altcoins connected to products or services. This might include a cryptocurrency for ride-hailing (think of it as Uber Coin), videos, games or airline tickets. The currency might only pay out in a service or product rather than in fiat cash. For example, a Netflix coin that pays out in videos rather than dollars.
Such solutions are possible because cryptocurrencies are a store of value. Anything of value can potentially be stored in them. Some cryptocurrency platforms including Ethereum, WAVES, and NEO are specifically designed to store information in addition to value, so they can be used purposes such as insurance policies or contracts.
The Future of Initial Cryptocurrency Offerings
The next big thing in ICOs will probably be offerings connected to existing goods, services, products or companies.
The WhopperCoin ICO created by Burger King Russia is an example of such an ICO. It is an ICO designed to promote the sales of an existing product, Burger King’s iconic hamburger, and raise funds for the company.
Some future ICOs that are likely to be worth a lot of money will be those from large, well-known and well-respected organizations. Many established businesses including banks, insurance companies, investment banks, hedge funds, corporations and retailers are likely to issue their cryptocurrencies in the near future.
A leader in the movement is Goldman Sachs (NYSE: GS), the giant Wall Street investment bank was granted a U.S. patent for a cryptocurrency called SETLCoin on July 11, 2017, Coindesk reported. The purpose of SETLcoins will be to serve as a market for digitized stocks.”
Since Goldman Sachs had an enterprise value of $256.75 billion on September 1, 2017, and assets of $906.52 billion on June 30, 2017, SETLcoin is likely to be worth a lot of money. Goldman Sachs’ stock was trading at $225.88 a share on September 1, 2017. That means SETLCoin might be the biggest ICO ever if Goldman Sachs ever holds a token sale for it.
Nor is it just Goldman Sachs, a consortium banks that includes Bank of New York Mellon (NYSE: BK), Banco Santander (NYSE: SAN), The Deutsche Bank (NYSE: DB) and UBS Group (NYSE: UBS) is working on USC or Utility Settlement Coin, Market Mad House reported. USC is designed to serve as a settlement tool for central banks. It is also designed to serve as the base of new wealth management tools and products for the rich. That mean USC might also be an incredibly valuable ICO.
Shrewd investors should watch the financial news carefully because Wall Street, big tech companies like Apple and Google, insurance companies, hedge funds and similar organizations are likely to hold ICOs in the near future. Many corporations and banks will launch their own cryptocurrencies in an effort to hedge cash against inflation and reduce banking and payment transfer costs. Another use for altcoins will be to speed up money transfers.
The Final Future for ICOs
The final frontier in ICOs might also be the most lucrative. Some governments and central banks will probably hold ICOs in the near future.
News stories indicate that several central banks including the People’s Bank of China (PBOC), Russia’s Central Bank, the Bank of England, and the Monetary Agency of Singapore have been exploring the possibility of issuing national cryptocurrencies. A proposal for Estcoin, a national cryptocurrency for the tiny European country of Estonia, has been floated online and has attracted the interest of Ethereum creator Vitalik Buterin.
Government-token sales are likely to attract a lot of interest and money. Many investors will buy government altcoins they will view them as more secure and valuable than private issues. A strong possibility is that government ICOs might take the place of government bonds at some point.
The potential for profit in ICOs is vast because we are only scratching the surface of this new investment class. More than a few new millionaires and some great fortunes will surely be created by initial cryptocurrency offerings.