Initial Coin Offering -- Caveat Emptor

Initial Coin Offerings (ICOs) are the newest rage -- no more than 4 years old. The idea is you trade future cryptocurrency for current one with immediate liquidity. You are not buying ownership, you are financing a project whose success will cause your investment to grow. It all started with Bitcoin but it’s Ethereum that has become the dominant platform.

According to research firm Smith+Crown, as of April 2017 nearly $250M had already been invested in such offerings, of which $107M alone in the first fours months of this year. This is despite the almost complete lack of regulation and the inherent high risk of projects listing themselves. Critics further argue that in crowdfunding sites like Kickstarter backers support a project to get an actual product, but ICOs don’t even have that underwriting and are essentially speculation. MoneyWeb argued recently it’s a bubble ready to burst, publishing the data below.

More proof if you need convincing -- per Forbes, the Bitcoin market capitalization has grown four-fold in just a year.

Why do ICOs then? Companies believe it’s the ultimate democratization of fundraising, which will spur more innovation. Backers believe you can make a strong, quick return. Kick’s ICO, the first of a mainstream company, will be a litmus test of this new instrument. And if history is any guiding post, a new financial instrument leads to a boom and a bust but eventually to a stable and typically regulated descendant.

These are purposely short articles focused on practical insights (I call it gl;dr -- good length; did read). I would be stoked if they get people interested enough in a topic to explore in further depth. I work for Samsung’s innovation unit called NEXT, focused on early-stage venture investments in software and services in deep tech, all opinions expressed here are my own.