Cryptocurrencies have taken a big fall from their highs of November 2017. While the rest of the world was jubilantly waiting for the clock to strike midnight on New Year’s eve, crypto-traders all over the world were constantly logged into their favourite crypto-exchanges, hoping for a miracle to reverse the sudden fall in crypto-prices. They consoled themselves by saying that it was temporary.
Those who had bought their first bitcoin during December 2017 learned first hand why cryptocurrencies are called the new wild west.
Fast forward to July 2018 and the cryptocurrency prices are stuck at a third of their December 2017 highs with no sign of repeating their earlier feat. John McAfee claims that the BTC price will touch $500,000 by 2020 and an ICOBENCH report says that the market will pick up after August 2018 (July, if Russia gets knocked out of the FIFA World Cup).
The problem which these claims come from is a lack of an understanding of decentralization. These guys can be the best marketers, analysts, and what not, but when it comes to understanding decentralization, and based on these singular utterances from them, their understanding of decentralization appears to be lacking.
As ICO Consultants, we have begun to hear another rumour on the grapevine — nobody is investing in ICOs anymore. Yes, the regulation around ICOs has tightened and one country after the other has drafted their policies on what we fondly called ‘utility tokens.’ But, was that not the plan all along? When there were no laws, we ran off to Barbados, Malta, and Gibraltar because they had ‘friendly laws’.
Now that laws are coming up in Singapore, USA, and the UK, why are we still running to the tax-havens? Yes, Malta has a new law that allows DAOs to achieve similar legal status as companies, but how many ICOs are planning to create a DAO?
Most ICOs these days resemble torrent sites. They list content but do not host it. The only difference is in their business model. So yes, we should excuse the investors, err.. contributors for not getting extremely excited about such ICOs.
So, is it true that people are not buying tokens anymore? This is not the case. In fact, the amount of money flowing into ICOs has increased at a tremendous pace over the past year.
ICO Consultants would be quick to point out that it is not crowd investment that is coming in but is private investment from angels and VCs. Yes, that’s true. The number of non-accredited investors buying tokens is not the same. The number of non-accredited investors investing is expected to reach the same number as the number of non-accredited investors in equities and other capital market products.
We can’t blame the small investors because we tried to pull wool over their eyes but they caught us with our hand in the cookie jar. We sold the decentralization protocols to them as the silver bullet that would usher us into the era of equitable wealth distribution. This turned out to be a lie.
With Bitmain inching dangerously close to owning 51% of the hashing power on the bitcoin blockchain, how secure can the other Blockchains be?
Another deal-breaker for the small investor is the terrifyingly frequent pumping and dumping of altcoins popularly known as shitcoins. Caveat Emptor never rang truer.
Thus, the garden of Eden that was promised to the small investors via decentralization championed by Blockchain has turned out to be just another ruse.
The narrative emerging from the ICO gold rush is not all bad. Yes, some ICOs will have to close shop because not having a business model is no longer okay. Other ICOs, on the other hand, have used this opportunity to become regulator friendly and elucidate their tokenomics and business models.
According to Madhuri Walia, a Blockchain Consultant, an ICO must have/create the following documents before meeting investors, private or otherwise. Without these, no ICO Advisor, despite their claims, will be able to raise funds for your ICO.
- Tokenomics where the numbers add up — Designing of tokenomics must follow certain criteria to derive the token price, utility, and the total number of tokens mined. Refer to this guide on tokenomics to understand better.
- A scalable business model — A business model is a plan by which your platform makes money. It is not about appreciation of token utility and burning of unsold tokens. Explain why will people come to your platform and how will you monetize their interest.
- Bulletproof Tokenization — If you’re going the utility token route, you must find out the best fit for tokenization. Most ICOs these days tokenize the access to the platform and are no better than the video game parlors where we bought tokens to play a game for a few minutes. A good tokenization model can be seen in LaneAxis which has tokenized the supply chain that they are creating for the trucking industry.
- An investor pitch deck with the numbers broken down — An investor pitch deck must definitely have an elucidation of the business model, existing user base, and team credentials. Additionally, it must have an explanation of your product’s features and scalability potential.
- An elevator pitch — An elevator pitch is often overlooked by most ICOs. It is useful for pitching your idea to the potential investors that you might meet at meetings and seminars etc. It is better to have an elevator pitch and save yourself from explaining the white paper to someone at a dinner party.
- A team with great credentials — Yes, you have a great idea. Yes, smart contracts can ensure that anybody can create a solution for any industry. But running that business is an entirely different ball-game altogether. This is the reason why people look for those team members which have legitimate experience in that particular space. Having a cryptocurrency advisor whose only claim to fame is that they became ‘Experts’ on ICObench does not cut ice with investors anymore. Look at the ARK ICO. They have a team that has been in the business of managing seafood logistics of over 50 years combined.
- An MVP — in the words of an old-school investor who I reached out to, “I wanna see how much skin do you have in the game.” What I learned from that conversation was that if the ICO had not invested at least 30% of the planned ICO money from their own pocket, investors are not going to like it.
- Traction on social media — if the product is so revolutionary, it must reflect on social media. While a part of your social media outreach can be seeded inorganically, you must refrain from letting it go beyond 20%. There are tools to find out the engagement on social channels such as Telegram and it will reflect badly if these reports come out adverse.
- A practical Go-to-Market strategy — Both Blu-Ray and HD-DVD had legitimate go-to-market strategies. However, we remember only one of them today. Do you know that HD-DVD was backed by both Microsoft and Intel? Yet. It. Failed. Investors and buyers have an uncanny ability to fish out the bad eggs and reject them.
This brings us to the conclusion that ICOs are not get-rich-quick schemes anymore. The era of raising funds from just a white paper has long gone. If you want to raise funds via the ICO route, you now have to take care of several collaterals and ensure that your marketing pitch resembles a traditional fundraising round with hybrid models of offering. You might have to fork out equity to the private investor if you are really strapped for funds.
There is no silver bullet for raising funds and it is time we start to believe it instead of thinking that the ICO Market is on a downtrend. If your marketing, product development, and the team credentials are great, you will raise funds. There is no such thing as a market where investments dry up.
Even in times of hardships and calamity, man has invested, for profit or for fun.
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