of around $15 million. When I spoke to Dan, it was around $150 million. And today it’s well over $500 million. Crazy returns. And what’s more, these cryptocurrencies are liquid and tradeable for the everyday investor. A good friend of mine is still wincing after he sold 300,000 ether (the Ethereum cryptocurrency) in January for around $2.5 million. Had he waited until today, it would be worth nearly $100 million. These are cryptocurrencies that have been around a while. But there’s a huge amount of money now looking for the next 30- or 100-bagger. And that money is pouring into ICOs. ICOs are a relatively new form of financing for cryptocurrency startup firms. It’s like crowdfunding. The company will typically write a white paper outlining its project, along with the general terms of the ICO. Early investors can then put money into the ICO and be issued cryptocurrency tokens which can then be traded in the secondary market. OBSERVATIONS FROM THE FRONT LINE Having participated in a few ICOs of late, I’ll share some observations. Most crypto companies have open forums for their “investors” to communicate. They use messaging applications like Slack or Telegram. So you can see what the general “investor” base is like by keeping an eye on these message groups, which can have thousands of people.
There are a huge number of people who quite simply couldn’t care less about the technology, white paper, team, management, or anything technical at all. They are simply looking to buy tokens at the ICOs and flip them immediately for profit. By my estimate, nearly two-thirds of the inquiries on these community channels are either related to the ICO terms (i.e., What is this? How do I buy it?), or asking when the particular cryptocurrency will be listed on an exchange (i.e., How quickly can I cash out?). This is pure, unfettered speculation. It’s gambling, nothing more. And it’s not sustainable in the long run. Now, I’m not saying that nobody is looking at proper business cases and asking the right questions. I’m just observing that hundreds of millions of dollars are pouring into a very, very wide range of ideas (many that exist solely in a white paper) right now. These kinds of capital raises also represent a massive mismatch of capital versus quality. Typically, with an unproven business model (i.e., little more than a white paper), you would be able to raise angel or venture capital (VC), or seed money... a few hundred thousand dollars perhaps. But now, these same companies, because they are focused on blockchains, are raising tens of millions of dollars or more. In traditional venture capital, these kinds of sums are reserved for proven, fast-growing, and revenue-generating operational businesses.
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