
Hedge Funds Flip ICOs, Leaving Other Investors Holding the Bag - rayuela
https://www.bloomberg.com/news/articles/2017-10-03/hedge-funds-flip-icos-leaving-other-investors-holding-the-bag
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empath75
> 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.

~~~
psyc
A 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.

~~~
shallot_router
What % of ICOs _are_ seemingly legitimate? I see advertisements for ICOs on
reddit and other tech websites all the time, and I have yet to find one that
doesn't look incredibly shady.

~~~
the_stc
Not many of them! Even the ones that are sincere, often have terrible ideas.
Or purely unworkable ideas or no business model.

It makes it hard for legit people like my startup. We're actually using tech
for an end case, not building tech on top of tech for tech's sake.

~~~
Mimisbrunnr
The legitimate ones happened years ago and have survived, they wouldn't be
called ico's anymore.

Invested in one that raised just over $1m, it was considered a huge amount at
the time, they had a solid team, serious whitepaper and a rough alpha open
sourced product that you could load up and use. A small team that struggled
with limited funds and still going strong long down the track.

Today whitepapers have little scientific merit and are more brochures. These
companies are raising 100's of millions with no product whatsoever.

Only time can tell legitimacy, and unless you have both the technical and
economic ability to properly assess these offerings the best advice is to stay
far away until a viable alpha product is created.

Anecdotal experience is that >95% of ico investors haven't even tried the
product they have invested in. Seen people who spend hours a day on the forums
spruiking yet can't even point to the binary download page when asked.

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deadmetheny
You 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
I 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
It'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
I 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?

~~~
whataretensors
Anonymous currencies. Dash, monero, zcash.

Feeless transactions. IOTA

Fog/Mist computing. SNM, Golem

Decentralized marketplaces. Many, syscoin is my favorite.

Identity tracking for IOT. Centralized solutions might exist, but WTC and the
like are interesting.

Decentralized governance. DASH, Lisk, more

~~~
mikkel
World computer - Ethereum, NEO, EOS, Waves, many more

Banking the unbankable - Airfox, VVToken, likely others

More efficient advertisement - BAT, AdEx

Paying content creators - Steem

Distributed file storage - FileCoin, MaidSafe, Storj

Uncensorable internet - zencash

BTC gets all the press for first mover advantage, but is really the worst of
the bunch.

This is not investment advice. It is quite exciting, however.

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thrill
The (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.

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vosper
These 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".

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wonderwonder
I 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
may I ask why you liquidated, especially with PoS approaching?

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stephengillie
Warning: 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?

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vthallam
Hedge 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.

~~~
cat199
> You can't expect SEC to rally every time

Can you expect them to rally _any_ time, given 2008?

~~~
fludlight
The SEC prosecutes a huge number of securities frauds.[1]

[1]
[https://www.sec.gov/litigation/litreleases.shtml](https://www.sec.gov/litigation/litreleases.shtml)

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readhn
Haha. 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).

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aml183
This article gave no specific examples of a hedge fund actually flipping a
position.

~~~
dreit1
Although not a real hedge fund polychain flipped numeraire like nobody's
business. (Check out the charts on that one)

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egypturnash
Cryptocurrency 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.)

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EternalData
Early 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
I 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.

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s73ver_
Ok, raise your hand if you didn't see this one coming.

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sna1l
Aren'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.

~~~
cocktailpeanuts
You'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.

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mrguyorama
In 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.

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mankash666
Ironic. Crypto currency was supported to be the equalizer, not enabler of
incumbents

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ojr
ICOs, 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

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gaetanrickter
A document describing the precise process used to acquire ICO shares, which I
plan to automate [https://medium.com/@simonwintersf/the-worlds-most-simple-
gui...](https://medium.com/@simonwintersf/the-worlds-most-simple-guide-how-to-
participate-in-an-ico-ba41c2790f7a#der5f)

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shp0ngle
It's all a lie. All a big lie.

 _catches head and laughs maniacally_

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NelsonMinar
This is hilarious; the hedge funds are scamming the scammers.

