The ICO Dream
Fast and easy access to the capital needed to fund a blockchain based startup or project, without having to go through all the usual regulatory hurdles, was the fantasy of every wannabe tech innovator or entrepreneur. However, the potential benefits of the ICO dream are being overshadowed by both bad actors and reality. The ICO has no borders and can access investor funding globally, but that also means there no borders when it comes to the far-reaching security regulations of some countries.
ICO promoters, investors, and gamblers will only pitch the positives, even if they are highly unlikely to happen. Profit, future project success, supposed token utility, and a long list of promises on a whitepaper may be all you hear about. Anything regarding government or security regulations may simply get the Teflon coating – they claim immunity from regulation, or feel they are in compliance with all regulations (because they think they aren’t selling the tokens to U.S. investors, etc), or they simply don’t mention the word regulation at all. Staunch financial traditionalists that stand to lose their market as lenders or middlemen, as well as any other individual or business that is heavily invested in any area that is going to see disruption, may take a very hard line on ICOs. When the current ICO market cleans itself up, finds a solid balance between innovation and appropriate regulation that protects investors, somewhere in the middle of these two opposing views will be the dream ICO of the future.
An Initial Coin Offering (ICO) is a new method of raising capital for blockchain-based technology startups or projects. A new cryptocurrency is created and these ‘digital tokens’ are sold to interested investors, as well as speculators that are gambling on a significant price increase. In theory, it is an amazing method to quickly fund a startup. When undertaken properly with the guidance of a professional business mentor that has expertise in the cryptocurrency/blockchain space, or by a trusted NextGen Venture Capital organization, the chance of success will improve remarkably. These ICO projects need to be analyzed and vetted by an unbiased professional, before you can trust any of the claims made.
This guide is for those who are interested in investing in cryptocurrencies or ICO tokens, understand that it is high risk, but have no idea what to look for in the 1500 coins and tokens available. It is not intended as financial or investment advice, and does not make any specific recommendations. Its purpose is to give you an idea on what information you need to find, where to find it, what it may mean, and potential questions you need to get answers for. It is not a set of rigid rules, and there are always exceptions, but if a coin you are researching has too many red flags, you may want to look elsewhere.
This guide isn’t based on proven investment theory, rather it is an observation based compilation of what we have witnessed within the industry over the last 4+ years. Think of this as some of the missing parts to the standard advice of “do your own research”. Never accept a buy recommendation from anyone at face value – educate yourself, and always make your own decisions.
The result of a Supreme Court ruling in the case of the SEC v. W. J. Howey Co., (1946), set a precedent as to what constitutes a security. Any “investment contract” that meets the following criteria (the Howey Test) is deemed to be a security:
- An investment of money;
- with an expectation of profits arising from;
- a common enterprise;
- depending solely on the efforts of a promoter or third party.
- The Security Acts of 1933: “The term ‘‘security’’ means any note, stock, treasury stock, security future, security-based swap, bond, debenture, evidence of indebtedness, certificate of interest or participation in any profit-sharing agreement, collateral-trust certificate, preorganization certificate or subscription, transferable share, investment contract, voting-trust certificate, certificate of deposit for a security, fractional undivided interest in oil, gas, or other mineral rights, any put, call, straddle, option, or privilege on any security, certificate of deposit, or group or index of securities (including any interest therein or based on the value thereof), or any put, call, straddle, option, or privilege entered into on a national securities exchange relating to foreign currency, or, in general, any interest or instrument commonly known as a ‘‘security’’, or any certificate of interest or participation in, temporary or interim certificate for, receipt for, guarantee of, or warrant or right to subscribe to or purchase, any of the foregoing.”