
Investing in ICOs May Be Even Riskier Than You Realize - petethomas
https://www.bloomberg.com/news/articles/2017-11-06/three-fourth-of-digital-tokens-are-riskier-than-you-realized
======
a_d
There are so many articles about ICOs that don't offer any new thinking. This
one covers:

1\. Lots of ICOs happening (crossed $3B in money raised).

2\. ICOs are risky.

3\. SEC will likely use the Howey test to determine which ones are securities
(and therefore need to comply with securities law)

4\. Startups may be able to protect themselves by limiting token sales to
accredited investors and providing more disclosures in their white papers. (a
hack that most people now are well aware of -- i.e. the utility token + SAFT
route)

5\. When you invest in an ICO, you not just take financial risk, but also may
inadvertently be breaking a law (basically, ICOs are fraught with uncertainty)

I wish we heard something new. Clearly, there is something interesting
happening - a new way to raise money, or perhaps a new way to launch products.
In the long run, it is exciting because it will help launch useful products
and services. But many articles often just regurgitate what most people
already know, and don't offer anything new.

I suppose regulatory authorities at some point will offer a way forward (by
regulating this space -- which I think would be a good thing!). Until that
happens, we just hear a lot of armchair thinkers and potential practitioners
just conjecture endlessly.

~~~
tomkarlo
Bloomberg is targeting this at their reader base (general investors), who may
or may not be up to speed on the latest ICO discussion, or aware of any of
these issues. News reports targeted at the broader market are always going to
seem obvious/repetitive if you're already active in a sector.

~~~
ultimatejman
I agree with both of you. Yes, it covers what most people in the space already
know, but these things must be reiterated to the public. For every ICO hype
article, a piece like this should exist.

------
matt4077
All discussion of ICOs suffer from a common misunderstanding of the word
'risk'.

"People should be allowed to invest in high-risk/high-reward opportunities"
the crypto community will say. But that sentence involves a sleight of hand:
Financial markets are made to manage and quantify "risk", yes. However, the
risks of financial markets are almost exclusively those of _future events
unknown (and mostly unknowable)_ : Will people like this movie (once it's
made)? How much oil is in this or that field? Is it possible to deliver pet
food over ethernet?

ICOs' "risk" is about facts that _are currently known by some people_ , with
those people being the ones selling you their tokens: Will they actually build
a product or abscond with the $500 million they collected in the ICO? Is a
has-been boxer a good investment advisor? Does this company's CTO, one "Loyd
Techmanski, PhD" actually exist?

------
carlisle_
I feel like people hear the word 'cryptocurrency' and ignore all of the well
established risks of currency speculation as an investment strategy.

~~~
rsynnott
In this case it's speculation on unregulated penny stocks rather than currency
speculation, but yeah, same applies. Cryptoland seems doomed to repeat the
mistakes made by the traditional markets over the last couple of centuries.

------
the_stc
Most ICOs are playing off these things, trying to avoid the SEC, and in turn,
hurting investors by giving them a bad deal. Tezos, for example, calls their
investors donors, giving them donations. This is disgusting.

We (see profile) are doing the right thing by issuing an unregulated security.
With privacy tech this will not be a problem for investors, and we absorb the
risk along with the other risky things we do. Our contingency system will
allow the platform to continue even if we have an accident or fail our opsec
and are outed.

I do not quite get this article saying that ICOs are riskier when they issue
shares or equivalents. Investors are at a better position if they own part of
the underlying company instead of a token that could simply be replaced.
Nothing stops Filecoin or the other storage companies, for instance, from
pegging the value of the token very low, or outright issuing new tokens or
just accepting ETH/BTC/XMR like they should.

------
cjbenedikt
People lost a lot of money (some all of it) in the dot.com bubble. Despite all
those stocks and IPOs being "regulated". And in that case those stockes were
heavily peddled by well known brokers or advisors (not the case in ICOs yet).
Does it feel better if you lose your money in a "regulated" way? Can you
recover it? When $65b disappeared thanks to Madoff the SEC looked the other
way (or not at all, rather). His company was "regulated" too. But you cannot
even sue the SEC...Regulation adds costs for lawyers, auditors, brokers and
the exchange. But it doesn't prevent you from losing it - as the dot.com
bubble demonstrated.

~~~
nikkwong
The "f __* the system " mentality of crypto enthusiasts is —albeit somewhat
warranted—often over the top and slightly annoying. Madoff was arrested and is
serving life in prison. What more do you want?

~~~
nrhk
I think people want their investments and life savings back, that would be
nice.

At the end of the day, your money isn't insured just because the SEC is
regulating a market. And the overall point is that regulation at the end of
the day does not equate to safety and no risk.

------
Kiro
What powers does SEC have here if the people behind the ICO are anonymous and
you invest anonymously?

~~~
notyourday
The SEC has $$ and ability to get Guys In Robes(tm) to send Guys With Guns(tm)
to enforce its "outdated" laws.

Edit: down voting this does not change the facts of life.

Courts have more power than crypto enthusiasts/crypto promoters/pump and dump
peddlers/etc. That power is enforced by Guys With Guns.

~~~
mustacheemperor
This reminds me of the frequent argument that "bitcoin's value is just as
unfounded as the us dollar's." Sure, as long as you don't consider the US
dollar's value to at all be related to aircraft carriers and ICBMs. That said,
I think there's room to argue that bitcoin or a future cryptocoin could have
advantages which exceed the value of those factors.

~~~
notyourday
The value of a currency as either a store of value or as a medium of exchange
is directly proportionate to ability of the entity that uses the such currency
to beat whoever does not like this currency into pulp on a global scale
(aircraft carriers, ICBMs, nuclear submarines, US Marines, etc) or police,
judiciary, prosecutors on a local, state and federal level in case Punk Joe
decides to rob aunt Suzi on her way from a bingo hall.

That's why GBP was very valuable when Britain was the big dog on a block, US
dollar is highly valued now and currency of Venezuela is in a toilet.

Decentralized nature of the crypto-currency is something that will destroy its
value as there would be no one to beat the living shit out of the Punk Joe on
a behalf of Aunt Suzi or US Navy showing up next door.

Where I do think we would see block chain applied is international settlements
between central banks. Imagine, if you will, that all money flows between all
countries in the aggregate would be visible and validatable by all central
banks. Considering that we are rapidly approaching the end of the anonymity of
inter-country banking it seems that those book-to-book transactions would gain
a lot of additional legitimacy if Egypt CB could verify that the money moved
from Sweden did not come from Israel CB if Egypt's position is not to accept
Israeli' money.

------
readhn
As in 99% of them will go down to 0.

~~~
lurker456
Some might go under 0 - being a defendant even when innocent has costs too.

