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Hedge Funds Flip ICOs, Leaving Other Investors Holding the Bag
- s73ver_ 9y agoOk, raise your hand if you didn't see this one coming.
- stephengillie 9y agoWarning: article plays audio on open, on mobile. I opened the link on my phone (in an office) and was startled by a loud man speaking. Edit: The Kik coin makes me ask if coins are the new gift card. Instead of paying a business $50 to get a card worth $50 of merchandise in the future - are we just going to buy $50 worth of RetailerCoin?
- thrill 9y agoThe (significant) downside of limiting early investment to accredited investors is that the early investors are the ones who gain the most profits. They're also the ones who take the most risk of losing the most. People seem to want low-risk high-reward investments and that demanding the appropriate laws will give it to them. The thing that ICOs seem to have not caught onto yet is that early investors are mostly in it for the flip, as evidenced by so many ICOs quickly dropping below ICO price. This is easily solved by restricting delivery of the tokens to a company-benefiting schedule. The difficult decision will be balancing the imposed illiquidity with attracting enough initial capital to be viewed as attractive to later investors.
- sna1l 9y agoAren't they taking on somewhat more risk by contributing large sums of money earlier on? I kind of think the discount is acceptable, but there should be stronger terms around the ability to flip it immediately.
- snarf21 9y agoYeah, I don't see it as "holding the bag". People are greedy and are now sad they can't find anyone to buy their pyramid scheme tokens. If these ICOs are now requiring accredited investors, why does there not seem to be the same level of SEC scrutiny that any normal hedge fund must have?
- wmf 9y agoGetting in a few weeks earlier on a multi-year project doesn't seem like much additional risk.
- cocktailpeanuts 9y agoYou're right to some degree but not entirely, because of how early cryptoeconomics are in their stage. When people pump money into a currency, they're not just "taking risks", but also using their authority in the community to generate hype, which brings in uneducated and uninformed people into the equation. If you look around the Internet you quickly realize how "uneducated and uninformed" most of these investors are. This is different from traditional family/friends => Angel => VC => public model because the public is protected from making any foolish investments until the org shows tangible traction. So TLDR: they're taking risks, so at the same time they try to minimize their risks. This is why they exit very quickly. This isn't possible with traditional investment model where your money is locked in until an IPO or an M&A, which is why it is unfair to say these people are "taking risks". They have the ability to manipulate their risk and that makes a lot of difference.
- deadmetheny 9y agoYou mean to tell me that investors don't actually want their digital Beanie Babies and are trying to pitch them to suckers after getting them cheap to make money? Colour me shocked. It's like nobody learned anything from the early 2000s.
- pm90 9y agoI don't think they forgot the lessons. Its just that the allure of quick money is just too great for many people. I think this might be why a lot of people get addicted to gambling, for instance. In this case, I think most people are aware its a bubble/ponzi scheme and are trying to "beat it" by making the most profit and getting out ASAP before the bust.
- deadmetheny 9y agoIt's a shame that cryptocurrency/tokens are being abused in this way - they're an interesting technology with a lot of good use cases, but after enough ICO instances where people get burned I'm concerned there's gonna be a huge aversion to them by the general public.
- dmitrygr 9y agoI keep hearing this. Can you give an example of a non-contrived use case that the world currently (1) needs and (2) lacks adequate solutions for as is?
- dmichulke 9y agoWas an iPhone ever needed as an adequate solution to some problem?
- vkou 9y agoBlackBerries not being all that good was a problem in search for a solution. You know, the BlackBerry? That smartphone that did everything that an iPhone could do, just a bit worse? Steve Jobs didn't exactly envision the iPhone wholesale, on the seventh day of Genesis.
- vthallam 9y agoHedge Funds exist for one reason and one reason alone, to make money. Of course, they like early investment in the ICO's. But what's frightening is that the retail investors don't see the very obvious thing. You can't expect SEC to rally every time, individual investor education I guess is more important so people won't lose their hard earned money.
- empath75 9y ago> Startups often need access to capital to promote ICOs. This should be a huge red flag. If a business is spending the majority of the money from early investors to find more investors, rather than actually developing and marketing their product, that's pretty much a text book pyramid scheme.
- omarchowdhury 9y agoIt's hardly textbook: previous investors are not being directly paid from incoming funds.
- vkou 9y agoYou're referring to a ponzi scheme. ICOs aren't ponzi schemes, but most of them are pump-and-dump schemes.
- psyc 9y agoA huge proportion of the ICOs I investigate turn out to be pure facade. It's amazing to me just how quickly this con was honed and formalized, but I guess people have always been good at aping when it comes to get-rich-quick bandwagons. The standard ICO consists solely of: 1) A slick website. 2) A well-produced video. 3) A whitepaper that discusses trivially standard blockchain features and goals. No differentiation necessary. 4) The appearance that prominent or well-credentialed people are working on the "technology". That's all. The "product" is vapor. The real product is another pump & dump vehicle to satisfy the insatiable demand for pump & dump vehicles. This product is sold to the "investors" during the ICO. Said "investors" are even explicitly awarded more coins for shilling the pump everywhere by creating amateurish articles and YouTube videos.
- vosper 9y agoThese ICO shenanigans remind me of that saying from poker, which is something like "if you're looking around the table and you don't know who the sucker is, it's you".
- EternalData 9y agoEarly retail investors in ICOs are not going to be very happy with returns down the line I don't think...meanwhile, hedge funds thrive anywhere there is volatility, and crypto is nothing but volatile.
- the_stc 9y agoI had one of our investors write us and say he was really counting on our success to pay some family bills. I told him he should back out, that no investment is a good idea for bills. Much less a startup! Much less an illegally operating startup that depends on cryptocurrency! I'm sure of our model, but damn.
- mrguyorama 9y agoIn the same way, it would make perfect sense for Hedge Funds to invest early, or even start actual pyramid schemes, yet we've prevented that. Junk like this is not healthy for the market.
- aml183 9y agoThis article gave no specific examples of a hedge fund actually flipping a position.
- dreit1 9y agoAlthough not a real hedge fund polychain flipped numeraire like nobody's business. (Check out the charts on that one)
- NelsonMinar 9y agoThis is hilarious; the hedge funds are scamming the scammers.
- ojr 9y agoICOs, cryptocurrencies, highly speculative assets are a high risk gamble, hard to tell which one will succeed, if it was easy we'll all be rich, only way to win is by using the information you have available and only invest what you can afford to lose
- aurora- 9y agoEven if an ICO does manage to have a novel idea, as soon as someone buys up the company guess how much the coins are worth?
- ringaroundthetx 9y agouhhhh this is no different than venture capital or any revered seed or angel stage investor. the only way to be outraged by this is to be completely ignorant of everything around you. accredited investor laws perpetuate this. the rich get richer, the poor get children.
- gaetanrickter 9y agoA document describing the precise process used to acquire ICO shares, which I plan to automate https://medium.com/@simonwintersf/the-worlds-most-simple-guide-how-to-participate-in-an-ico-ba41c2790f7a#der5f https://medium.com/@simonwintersf/the-worlds-most-simple-gui...
- wonderwonder 9y agoI liquidated all of my ether today. While I appreciate the potential of the technology, in my own opinion it is just too susceptible to market manipulations currently and there is too much uncertainty. I could be wrong but I am comfortable with that. I will reinvest the profits in a vanguard fund where at least I know the 1000 pound gorilla manipulating the market is on my side. Kind of... To those staying in, I wish you nothing but success.
- trakout 9y agomay I ask why you liquidated, especially with PoS approaching?
- readhn 9y agoHaha. How is this different from last tech bubble high of 2000 where folks were "daytrading" quickly appreciating tech stocks or last real estate cycle high where "everyone" was in and out flipping homes. I say its not any different! Here you have hedgies using early access advantage to buy at a discount and quickly turn around and sell to the "bag holders". (aka retail "know-it-all" bag holders).
- deleted 9y ago[deleted]
- ringaroundthetx 9y agoIt isn't different, people need to validate their beliefs even if that means ignoring or being oblivious to how it is exactly the same as how their favorite markets function
- shp0ngle 9y agoIt's all a lie. All a big lie. catches head and laughs maniacally
- egypturnash 9y agoCryptocurrency is now to the point where Wall Street is noticing that it is a thing people are willing to assign a value to, despite it generally not having any obvious inherent value. Be careful: Wall Street is really good at extracting this value, and leaving everyone else involved with empty pockets. How can a cryptocurrency defend against this? Should it? Should it embrace this instead, in hopes of riding these cycles long enough to look like a legitimate Store Of Value? Which one would be better for the theoretical long-term goal of replacing existing currencies with cryptocurrency? (Not that I am saying every ICO is floated by angels with only the most perfect selfless interest in cryptocurrency; decide for yourself what percentage of the people doing this are running a scam.)
- mankash666 9y agoIronic. Crypto currency was supported to be the equalizer, not enabler of incumbents