ICOs Raised $4 Bln in 2017, What 2018 Has in Store

2017 has definitely been a record-breaking year for ICOs: a fiat equivalent of some $4 bln have been raised, and the number of successful token placements have increased to a couple of hundreds globally. Yet, in the same year, traditional IPOs are estimated to have raised $188.8 bln in total of 1,624 deals, according to E&Y IPO Global trends report. Only in third quarter, 2,645 venture capital deals amounted to $42 bln.

ICOs have raised less about two percent of global IPO proceeds, but ICOs not IPOs, and not venture capital deals, are the talk of the street these days. Why?

In one year only ICOs proceeds have surged almost 40-fold, from $96.3 mln in 2016. In 2014- 2015 the amount was microscopic. More than 180 new ICOs are scheduled to launch in 2018, according to ICObench listing.

It would be superficial and arrogant to explain the ICO explosion only by desire of newly-rich crypto-miners to invest their unexpectedly reevaluated digital assets in something productive and to protect themselves against volatility. It may be the case, but it doesn’t explain the whole case. In fact, there are three root causes of ICO success.

The good reason

ICOs and cryptocurrencies exploit fundamental flaws of the traditional funding methodologies. They bring justice and equality to projects from underprivileged geographies, sectors, and don’t rob founders’ share while doing so.

Traditional financing is tilted towards an intermediary, not a creator, and it is designed to lower the risks of that intermediary, not the investor or founder while maximizing intermediary’s yields. It basically works around the principle of Matthew 12:15 - “Whoever has will be given more, and they will have an abundance. Whoever does not have, even what they have will be taken from them.” Simply saying, it takes money to get more money.

Classic venture financing is orders of magnitude harder to achieve for those who live outside global hub cities. Most US funds won’t even consider financing an enterprise not domiciled in the US. Venture capitalists normally claim a hefty part of the equity in exchange for the money, so investors, irrespectively of their share, greatly influence the decision making of the founding team, and not always for good.

The first answer to these problems were crowdfunding platforms. ICOs have just made another step towards reducing the friction behind crowdfunding, de-intermediating it further.

The bad reason

Getting venture financing, let alone reaching for IPO afterwards, requires the team to distract themselves from the product development, marketing and promotion. Compliance, legal and due diligence procedures make the auxiliary mission of securing the funds for the project a separate task, as complicated or even more complicated than launching the product itself.

It’s not the only reason behind the ICO triumph.

Despite cyber-anarchists’ wet dreams, states won’t go anywhere anytime soon, and legal norms for ICO didn’t appear out of thin air. As they say in the military, service regulations are written in blood – of those who died to teach others a lesson. Stock exchanges and financial markets are regulated not exclusively to keep the profanes out. It is because most scams, frauds and crashes have already happened there. Sooner or later, ICOs will be regulated. And we should rather be a part of the solution to this problem, not the problem itself.

The ugly reason

In ideal post-Blockchain smart-contract, self-governing, crypto-anarchic world,  imagined by technophiles, we should all be singing “Hosannas” by now, praising human progress and ingenuity.

But we wouldn’t be humans if a life-changing invention weren’t used to cheat, defraud and steal. Cryptocurrencies and subsequently ICOs aren’t an exception, and there are and always will be frauds of course. Traditional financing doesn’t necessarily offer substantially better investor protection. Even the most stringent due diligence doesn’t guarantee against fraud. Crypto investment schemes are especially prone to it because of anonymity.  

ICO segment is still in its infancy, yet this baby is gaining weight alright. Childhood illnesses are many. First and foremost, crypto world has a severe reputation problem. The SEC calls for extreme precaution when investing in ICOs. To gain trust, we should start from within, and establish it first with the community.

Even in the absence of governmental regulations, self-regulation framework of ICOs will inevitably arise. Moreover, to avoid overregulation and unnecessary intervention of governments, it is essential that the community keeps policing itself better than any regulator. That’s exactly where the sector is headed – otherwise, it won’t survive.

What to expect in 2018

In coming year ICOs will offer more projects to serve the broader community, not limiting itself anymore to the Blockchain infrastructure development, payments and speculative trading. It will less much less revolve around purely financial technology. In 2017, we have already seen examples of Blockchain notary public, Blockchain-based real estate investment, loyalty programs, supply chain management, intellectual property rights management and other real-world applications. We’ll see more of that in 2018.

Top stock market performance

This next chart shows the performance of the five of the larger cryptocurrencies including Bitcoin (BTC/USD). The cryptocurrencies shown in this chart and the accompanying table further down, is not comprehensive and is chosen as a sample of the more popular and widely traded cryptocurrencies.

It is interesting to see that the cryptocurrencies shown all started to accelerate higher around early-November, except for Ripple (XRP/USD). Ripple was late to the party but doesn’t seem to be losing any time making up for the slow start. You can see how it has been rising rapidly recently while the other major cryptos start to pullback. For the month of December Ripple has advanced more than 700 percent. The Ripple token is used to facilitate global payments by banks and other financial institutions.

Following the strong performance of Ripple is Dash (DASH/USD). Dash was up at least 9,400 percent for 2017 through Dec. 31. Dash broke out of a 32-month base into new high territory in February and has barely looked back. Over the past 10 months, since the breakout, Dash as advanced as much as 10,584 percent, as of its recent high of $1,595.76 reached in December. So far, since reaching that high, Dash has moved into a pullback, falling as much as 51 percent before bouncing.

Ethereum (ETH/USD) was the third-best performer for the year, up at about 9,000 percent to $757 at Dec 31. It started 2017 very strong, rising over 5,000 percent in the first five months before moving into a four-month or so consolidation phase. A classic symmetrical triangle consolidation pattern formed subsequent to the top. Ethereum broke out of that pattern with conviction in November, rising a little over 100 percent before confronting resistance at $863.0 last decade of December and sliding into a retracement. To date, the retracement has seen as much as a 40 percent loss in value from the high.

In fourth place comes Litecoin (LTC/USD), with a 5,582 percent advance of the year so far. Litecoin has been pulling back over the past couple of weeks, since hitting resistance at a record high of $420.0. That high completed a 735.8 percent increase in only six weeks, starting at the low of a three-week pullback at the beginning of November. The move was accompanied by increasing volume until the top, which is where weekly volume reached a record high.

Let’s now jump to Bitcoin, which comes in sixth place for the year out of the cryptocurrencies selected. Of course, Bitcoin has been the one getting much of the attention in the sector since the summer. It is up 1,390 percent year-to-date and was up as much as 1,935 percent at the record high of $19,666 hit mid-December. Interestingly, the second highest volume week of the past two years was seen in the next week following that record high. That was a down week.

Bitcoin had been advancing in a nicely formed parallel trend channel since the first quarter of the year until later in November. At that point, Bitcoin broke out through the top trend line of the channel and began to accelerate higher. This can be seen in the increase in the angle of ascent of price in the following chart.

Going back one to fifth place is Monero (XMR/USD). Monero is up 2,481 percent. It ended 2016 at $5.90 and jumped to at least $348.02 over the subsequent 12 months. This coin has been a steady progression higher throughout the year and recently hit a record high of $477 before pulling back. It remains in a clear uptrend.

IOTA (IOT/USD) takes seventh place with an advance of 1,356 percent since June, when it was launched. The high for 2017 was two weeks ago at $5.80. At the point, IOTA was up over 1,700 percent in just seven weeks. It subsequently declined as much as 80 percent off the high.

Finally, there is Bitcoin Cash (BCH/USD), released in August. Since then BCH has risen to $2,553 from $320. It continues to progress in an uptrend with higher swing highs and higher swing lows. It was up as much as 1,150 percent at the recent $4,000.10 high from Dec. 20.

skyrocketing Bitcoin price

Short theory

It is well known that a minority of Bitcoin holders--the whales-- hold a majority of the Bitcoin in circulation. It is rumored that roughly 1,000 people own 40 percent of all the Bitcoin. It is possible that the whales took a short position in their contracts, meaning they believe the price of the Bitcoin futures contract will be below the contracts purchase price at the date of expiration.

Because a whale might have unfathomable amounts of money and the belief that their contract will expire at a value less than the price they purchased the contract for, it would not be surprising if the whales pumped up Bitcoin price in the days leading up to the contract expiration date by buying more Bitcoin, and then sell off a large chunk of it on an exchange at the inflated price - hours before their contract expires.

The whale would experience a capital gain from driving the price up and selling off, and because this could cause Bitcoin price to plummet, the whales futures contract(s) are likely to expire below the contract purchase price, meaning the whales with short contracts would experience a capital gain from their futures contract in addition to that from selling off the actual asset (Bitcoin). In the days shortly after the first futures contracts expire, it would not be surprising to see the whales who took short positions use their profits from trading on exchanges and the futures market to buy back Bitcoin at the discounted price that they might have caused the market to drop down to.

Long theory

Or... it is possible for the opposite to happen. Maybe the whales and investors have taken a long position; meaning they believe the price of the first Bitcoin futures contracts will finish above the price they were purchased at. Instead of selling off a large chunk of their Bitcoin right before the contract expires, the whales would continue to pump up Bitcoin price by buying more Bitcoin leading up to the contract’s expiration to ensure that their contract will finish above its purchase price.

Although this is possible, it does not seem as plausible as the short theory. If whales went long and colluded to pump up Bitcoin price, they would not have the opportunity to buy back coins at a discounted price--this does not seem like a logical position for an experienced investor to be in nine days before CME Group’s first Bitcoin futures contracts expire… unless the whales postpone the short until CME Group’s first expiration date.

Or maybe...

Similar to futures contracts and the majority of Bitcoin price lately, this is pure speculation. Maybe nothing will happen at all and I’m over thinking how the market will react, maybe Jan.17 and 26 will not be significant dates for the Bitcoin economy. However, this is not my first rodeo. And if you’ve been a member of crypto community for quite some time now, you could see that the days leading up to a new or major event in the Bitcoin economy and the days shortly after are more than likely to see significant movements in Bitcoin price.

Dogecoin

Although Dogecoin has been around for quite some time now, this altcoin never amounted to much. More specifically, it never even got close to becoming a top 10 cryptocurrency, mainly because most people never took this concept seriously. This isn’t a big surprise, mind you, as Dogecoin has always been the “meme” of cryptocurrency in every possible way. It is also how the original creator seemingly portrayed this project.

At the same time, we all have to acknowledge that Dogecoin made some things happen which wouldn’t have been possible otherwise. It wasn’t Bitcoin or Litecoin which sponsored a NASCAR driver or sent the Jamaican bobsled team to the Olympics. That was all Dogecoin and its strong community of enthusiasts and generous individuals. All of that is well behind us now, though, and not much has come of Dogecoin ever since.

In fact, there has been little to no development of the Dogecoin ecosystem as we know it. Things have remained at a standstill for quite some time now. While there is no point in fixing something that isn’t broken, one would expect a bit more activity in this regard. Unfortunately, Dogecoin seemingly has no lead developer at this point in time. This situation has to change if the altcoin wants to succeed, although it remains to be seen if anyone will step up to the plate.

As a result, we’re seeing a public outreach by the Dogecoin community to anyone who wants to help maintain and perhaps improve this project. Although the community has done everything they can to keep things alive, there is a shortage of code contributors right now. A competent developer or team of developers is direly needed to restore Dogecoin to its former glory. Whether or not anyone can even do so remains to be seen.

It is rather commendable to see the Dogecoin community ask for help when they need it the most. Although Dogecoin is still around and has a pretty solid market cap, there are some things about this currency that could use some changes. The high emission scheme of this currency, for example, has been rather problematic from day one. It is evident inflation is perhaps the biggest thing to address first and foremost, even though there are so many DOGE in circulation already that it might not even matter at this point.

Whether or not anyone will take over the role of lead Dogecoin developer remains to be seen. It is a job no one will get paid for other than in the form of donations, but it would be a shame to see such an iconic project disappear due to a lack of interest. A lot of us grew up in the cryptocurrency world before Dogecoin was released, and it has become as much of a trend in this industry as any other coin.  

crytos currency

This inflection point is of massive importance for currencies because while the US trade deficit keeps growing, the eurozone’s current account surplus cruises over 3 per cent of GDP. An era of sustained performance of the single currency may well open up, if the Franco-German axis proves able to deliver on its historic opportunity to cure the eurozone from its existential doubts.

 Unsurprisingly, the slippage in the clout of the US political model is also benefiting China. The US exit from the TPP can be looked at as the symbolic go-ahead to China’s regional and global ambition. Again, as the US seems to be turning its back, Asian countries will no doubt be listening to China’s offer of a closer relationship.

 The Asian Infrastructure Investment bank, the “One Belt, One Road” project and the ambition to establish their own reserve currency, the renminbi, are all being given a boost by the US attitude. Last but not least, the assault on the dollar’s geopolitical status is also a boon for gold, the ultimate reserve currency, whose price is now breaking out from the declining trend it started after its 2011 peak. In conclusion, technical factors aside, the strength of the euro is both a reflection of the weakening of the US currency and of the new hopes that Europe can convincingly turn the corner after six years of existential threat. 

Nothing is written in stone: the US could suddenly do a U-turn in its vision and the challenge of bringing Europe together might prove beyond the reach of France and Germany’s reinvigorated efforts. However, the opportunity is there to be seized. The euro’s option value is great.