Things to Think About for the Cryptocurrency Newcomer

The world of cryptocurrencies is vast to say the least. When someone asks me what I do for a living and I tell them I deal with cryptocurrency analysis, the most common response is “Oh, you mean Bitcoin?” – When I respond with “sort of, but more to do with Initial Coin Offerings or ICO’s” one of two things happen:

  • Their eyes glaze over and the conversation grinds to a halt there and then
  • I get asked one or both of the following “Got any tips?” and/or “If I give you some cash, can you do it for me?”

Those in the first group often end up asking detailed questions a few days later on realising the profits to be made by investing in ICO’s (and always lead on the “Got any tips?” etc question).

The second group I always turn down and point them to ICOFormula. You might ask “Why? Surely there is a huge business investing for people on their behalf?”

The truth of the matter is yes, there is a small fortune to be made doing just that – however, it comes with a whole heap of issues financially, legally, personally and more. Hence the creation of ICOFormula- to help you learn not just how to invest in cryptocurrencies, but which cryptocurrencies to invest in, and (perhaps most importantly) when to invest into cryptocurrencies.

 Cryptocurrencies – What the Hell are they?

Most of the planet has now heard of Bitcoin for one reason or another – either having bought in early (and probably retired on their own private island) or having heard negative comment on how it’s all a scam in the press.

The reality is Bitcoin is real, not a scam, but it scares the crap out of the banking world because it’s self contained – there’s no government interest rates to fiddle with, and impossible to “print more of it” (quantitative easing/helicopter money).

Bitcoin led to the creation of Etherium – a more advanced blockchain that enables not only the transfer of funds, but also the holding, transferring and titled documentation of assets with something called “smart contracts” which essentially “bullet-proof” against fraud by ensuring multiple, independent parties validate transactions – all of which can be set to run automatically.

The creation of Etherium led to the ability to create tokens and coins within the blockchain itself for issue by anyone choosing to create a blockchain oriented company with the intent to raise investment from the public into their newly formed company.

Currencies, Coins AND Tokens?

Just to up the confusion a little more, there are what could be regarded as “Currencies” which, in laymen terms would be things like Bitcoin, Litecoin, Etherium etc. which can be used almost in the same way as cash if you have the correct type of wallet and payment facility.

Tokens and Coins are slightly different – The general consensus being that Coins have intrinsic value and can be bought and sold in a similar way to traditional stocks or shares. Tokens on the other hand have a utility function to them – i.e. they are a functional part of the company issuing them, the tokens themselves are required to use that companies products or services. There is in addition another token type you might occasionally see which is a dividend paying token. Utility tokens are the norm, some companies will offer dividend AND utility tokens in the same sale. To date I have yet to see a dividend-only token issue.

How “Safe” is Cryptocurrency Investing?

You’ll hear a wide range of opinions to this question, ranging from “It’s an outright scam” (Opinion of scam-master extraordinaire Jordan "Wolf of Wallstreet" Belfort - behold the irony!) to “Cryptocurrency Could Be the Future. Really”. (Opinion of Christine Lagarde, Head of the IMF (International Monetary Fund)).

The extreme answers are invariably wrong, serving only to garner press coverage from the angle the commentator is striving to promote.

The old-boy networks in banking are desperately trying to downplay the viability of the cryptocurrency world because it potentially spells the end of their rein over the global financial control, and, whilst blockchain technology in general does indeed have the potential to rebuild and stabilize the world of finance logically and be self-regulating – the reality of that is a good few years off yet.

On a more general note for the average person – Yes, there is risk associated with investing into any type of Cryptocurrency, more so with respect to ICO’s because they are for all intents and purposes raising funds based on an idea (in many but not all cases).

Although not exactly the same – ICO’s can in some respects be seen as the digital equivalent of the more familiar term from the stocks and shares world – an IPO (Initial Public Offering)

Regulations

To be blunt about it – there is very little regulation for the industry yet. This is changing rapidly as countries around the globe either embrace (Switzerland) or ban (China) ICO launches with many still yet to rule one way or the other.

Right now the industry is still very much in a “Wild West” status and investing into ICO’s comes with a sizeable chunk of peril attached for even the most experienced of investors. There has been a number of ICO’s that have failed to launch, turned out to be scams, become mired in legal swamps (Tezos) and that’s just the obvious – beyond that there are other questionable issues such as JesusCoin and even a blatant “Useless Ethereum Token” billed as “The world's first 100% honest Ethereum ICO” transparently offering investors no value. Despite huge warnings throughout the promotional material, the UET sale raised $97,172.

“Crypto Moon-Shot” or just another “Crapped-out Doom and Flop”?

Since there is little regulation or protection for investors, investing into ICO’s should only be undertaken with care and attention – ICOFormula has been created to help you get closer to achieving exactly that. We can’t (and won’t) guarantee the success of any ICO – we can (and do) however strive to provide the most detailed and accurate information with which to make your ICO investment decisions, based upon the hard facts of each offering, whilst combining extensive additional industry, company, social, and financial metrics to give you the best insight into whether the project of interest is the next “Crypto Moon-Shot” or just another “Crapped-out Doom and Flop”

What does ICOformula Analyse and Measure?

If you've tried to assess an ICO project yourself, you'll know from experience it's not quick or easy to find even just basic but complete information on the majority of projects - remember, it's a new market, there is little in the way of standardisation with respect to terms and naming conventions. It's improving with time of course - but that is the point - time that few of us have or can afford.

We have an extensive process vetting what should be listed initially, which is further reduced by the data available such as launch dates, prices, token mint levels and so on. From there, scores can start to be derived from the perceived or expected value in the business objectives, founders, team, advisors and so on. Then, the business model itself, the stage it's at right now, the history and business performance to date (if it is an existing business).

Once we have all that information, we then use the proprietary mechanisms we have built to pull in yet more data from millions of datapoints to further assess sentiment and engagement, interest and intent, and a long list of additional metrics to correctly weight and balance scores according to market conditions.

Storing the Past, Recording the Now and Indicating the Future:

The ICOformula platform provides detailed insight and analysis for all investors, from the short term flippers, the long term holders and (in time) for the day traders of live tokens

  • It creates a more balanced scoring of ICO projects in the early stages as the initial project is launched, and dynamically updates as news, activity and interest spreads. Many ICOs have appeared initially to be a solid projects with a great future, only to under-perform at the sale stages due to low sentiment, engagement, belief in the product, poor marketing and so on (and vice versa of course)
  • Once an ICO is released as a live token/coin - both the historical and continuing metrics we track and measure are incredibly useful indicators for traders of tokens in the live market place

 

Beyond the ICO Token Sales

Sooner or later the ICO boom/bubble will find its limit either through regulation or natural market regression (the novelty will wear off) in the same way the tech IPO boom did years ago as the tech markets started to crash.

That’s not to suggest the ICO world will suffer from a crash in the same way (although it most certainly could of course) – regardless, there will still be a continuing market place after the fact, where the battle then is which companies and projects are worthy investments in the day to day markets in much the same way stock exchanges still continue after numerous booms and busts over the years.

Behind the scenes here at ICOformula we’re already geared up to accommodate the future market place. Although the ICO/Token markets are similar in many respects to the traditional stock world, the information released and subsequently disseminated is not only vastly different, the users and actions taken as a result also differ significantly because traditional investment professionals either genuinely fear this complicated new marketplace, or are being told to by their peers.

The crypto markets are currently being flooded with new ICO projects – most will fail or disappear into obscurity in the first 12/24 months. Whilst the media and traditional investment world tout this as a fundamental argument to avoid the industry – the reality is the exact same thing happens in the traditional stock markets – it’s just been going on much longer and being a larger market place – it’s not as obvious to the casual observer.

Identifying the Long Term Winners

As history has always shown, when new markets or sectors flourish, there will always be a phase where the battle for market share and dominance is incredibly fierce. Wind the clock back a few years and think of Yahoo! – IPO darling at the time producing huge ROI multiples for early investors, yet never achieving anything like market dominance despite unprecedented investment at the time. Huge front end investment and excitement is not always conducive to long term success or profitability. At the time Yahoo! was a worthy investment based on hype and lack of competitors – fast forward to the current day and Yahoo! are far from being market leaders and no dominance in anything to speak of.

Whilst lack of competitors can make for a successful opportunity to invest short term, in particular with respect to having “first mover advantage” over the competition – it rarely equates to long term value and success.

The battle for sector dominance can be fickle and sometimes difficult to spot – a prime tactic used at least twice by electronics giant Sony illustrates this well. For those old enough to remember when video recorders were first launched there were 2 choices of format:

  • Betamax
  • VHS

For those under 30 you’ll probably be wondering “what the hell is Betamax?” Short answer is it was the significantly better format of the 2 options at the time enabling far more value and quality for the consumer. Logically one might think the better product should have risen to the top – the reason it didn’t? Sony.

Sony knew video was coming and whilst there may have been more format options at the time – only VHS and Betamax were in production at any scale. Someone at Sony realized that if it were possible to force only one format into dominating the market it would massively reduce tooling and production costs when producing video cassettes.

By promoting, pushing and publishing VHS content as the primary format – Sony eventually got their way and VHS dominated. They knew VHS was more profitable to produce media for and the machines could be produced more cheaply to boot.

The second time Sony pulled this stunt was with Blu-ray vs HD-DVD. An arguably much larger gamble on their part due to Microsoft erring toward HD-DVD as the format of choice, Sony took the rather extreme step of releasing the Playstation which would run only Blu-ray. An incredibly expensive means to an end for Sony because it meant for many years Playstation consoles were effectively sold at cost (possibly even at a loss early on) yet they got what they wanted – Blu-ray became the market format.

Of course it is also well worth noting even Sony doesn’t get it right every time – remember MiniDiscs?

The exact same situations are going to happen in the crypto world – those that spot them will be the long term winners.

 

Created: Friday, November 24, 2017

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