Right, that is exactly how it works. If your signal to the first IC isn't perfect, and it isn't with a 3.3v signal, you can end up with incorrect colors or shi

Right, that is exactly how it works. If your signal to the first IC isn't perfect, and it isn't with a 3.3v signal, you can end up with incorrect colors or shifted patterns. As you add more LEDs you have a greater chance of one at the end not lighting up or having incorrect colors throughout the string. 0.7 * 5v == 3.5v, and 3.3 < 3.5. You're out of spec for the part and can't expect it to work reliably.