My discovery of Bitcoin started as an attempt to diversify my own p2p lending investments. I found Bitcoin to use as an investment tool.
My education in Bitcoin started there and from there I learned about its privacy features, its purpose to be outside of the conventional banking system and all the other reasons why I love and hold Bitcoin today.
As to Bitcoin lending, where I started in Bitcoin, the lending platforms are having a tough time. Two platforms are going out of business entirely. One is stable but is having a tough time getting traction and getting enough loans on it although I’m a fan of them and their management team. The 4th (which I have never mentioned here cause I don’t lend on it and don’t recommend others try) is run by a bunch of amateurs and tries to get involved in share issuance for projects that are at best misguided or at worst illegal.
Yet with these challenges Bitcoin is still a fantastic investment tool, and not just to hold it like I do now. It and Ethereum, which uses the same blockchain technology in a different way and on a different platform, are becoming reserve-like currencies for Ethereum’s killer app so far: the ICO
ICO stands for Initial Coin Offering. It is the crypto equivalent of an IPO or a public offering of stock. A company issues an ICO, its own coin, and uses it to raise money for seed or growth stage investment in the company.
ICOs are being issued on Ethereum (ETH) and now on Ethereum Classic (ETC). The bulk of ICOs are on ETH, which is built specifically for the purpose of other companies building blockchain applications and has widespread developer support. To run these applications, you have to buy the token ETH, known as Ether or gas.
Does this mean you should go long ETH so you have Ether at your disposal? I don’t know. I haven’t so far although I hold some ETC, which I disclosed last week. You do need some ETH to participate in an ICO and get your coin and the issuer often converts its Ether into fiat money to pay for expenses.
This is one of the reasons for the enormous drop in ETH and nearly all cryptocurrencies in the last week. The ICO issuers, of which there have been quite a few in the last couple weeks, sold their ETH in order to have the cash for operations.
Some exchanges convert Dollars or Euros into ETH but everywhere ETH is available you can buy it for Bitcoin. What’s starting to happen is people buy BTC in order to have access to ETH or any of the ICO coins they wish to buy. Bitcoin is becoming the reserve currency for the entire crypto world while ETH is the anchor currency of the issuance, payment, and investment in ICOs. Both of these are VERY valuable traits to hold in currency.
Why You Should Care About ICOs
Potentially Transformative Tech
I’m no technologist but I like the potential of blockchain technology, the tech behind Bitcoin and Ethereum. My techie friends and colleagues believe it can range anywhere from very impactful with some excellent companies and services like Google’s effect on search to completely transformative of industries and economies like the Internet itself.
Limited Retail Investor Options
Individual retail investors are the focus of this blog and have been since day one. Aside from Lending Club and Prosper (these are new investor affiliate links where I get paid if you sign up at no extra cost to you), there are 5 other peer lending investment options for US retail investors so we have 7 choices. That’s better than 4 years ago when I started but still pretty limiting.
Have you noticed that IPOs into the stock market are fewer and fewer and they are raising more and more money? AliBaba raised 25 billion when it went public in 2014 and a company like Uber, reportedly worth $70 billion is STILL private. What that means for us retail investors and investors across the US is that only the professional investors (VC, private equity) have been able to earn the returns taking Uber’s value from ZERO to the $70 billion it’s worth today. This is a stark contrast to firms in the 1970s and 80s who raised far less, like when Intel went public and raised less than $10 MILLION dollars in 1971, and that’s no misprint. Intel, symbol INTC, is now worth $160 billion dollars.
And who got to participate in Intel’s growth from less than $10 million to $160 Billion? EVERYONE who chose to buy and hold their stock. All that growth came in the public markets but today, most of that growth is happening in private.
ICOs are democratized
ICOs are just getting started as a market and may or may not establish itself as a way to raise capital over the long term (I think it will grow and evolve). It is the most democratic and decentralized method of raising capital that I’ve seen so far and anyone who can get into the ICO can buy, and that’s retail investors included.
You must do your due diligence to be sure you are getting an equity stake in the company or a promise of certain revenues or profits and every one of these ICOs carries the risk of early stage and potentially high growth investments. Make sure all your retirement funds are NOT in this market. And like all new markets, there are scams out there. Educate yourself.
That being said, this is one of the best capital appreciation opportunities we’ve seen for retail investors especially since we have fixed income covered with p2p lending.
It’s important enough that some of the ICO companies need more information and coverage about them so people can decide if they should invest. I am hoping to provide some of that information by providing coverage for some ICOs. Investment banks have analysts that cover companies for them and the ICO market needs them too. I currently have ZERO ICO positions but I will disclose when I do, as I have done before.
Here’s what I’ll be doing:
Read the White Paper-every offering comes with a white paper describing the service/product and offering
Go over Fundamentals-what product is trying to achieve
Go over Negatives- what is missing, what is unrealistic, what is nonsense
Rate the Scam Factor- does this look like a legitimate project?
These are meant to inform and not be buy or sell recommendations. We are going to try a couple and see how it goes....