
Despite S.E.C. Warning, Wave of Initial Coin Offerings Grows - JumpCrisscross
https://www.nytimes.com/2017/08/07/business/dealbook/initial-coin-offerings-sec-virtual-currency.html
======
alistproducer2
I was involved with one of the bigger ICO right at the beginning of the ICO
craze. I had pretty regular conversations with the project founder and was in
talks to become the dev evangelist. The project had raised ~$5 million in ETH
(this is when ETH was trading around $80). Despite the fact that this project
had raised a crazy amount of money the whole project was being conceptualized
and coded by a single 23 old guy who was promising features that much larger
projects with teams of the best people in the field were yet to solve. Not to
mention the project was blatantly lying about it's PoW algorithm.

When I tried to point out that the project should use some of that money to
organize the software engineering aspect the founder got pissed off with me
accusing me of trying to run the project. They had a second round and raised
even more money (in addition to the insane capgains on their first round).

I check the github from time to time and it appears they've got at least 2
other devs involved and may actually bring a blockchain to market but this
doesn't hide that fact that the project needed nowhere near the amount of
money they raised. Hell they could've used a couple hundred grand from the
first round and literally just paid a team of people to build the blockchain
for them. did I get off of a gravy train? Yes. But there are more things to
life than money.

~~~
phkahler
If you're launching one of these, you don't really need investment. You just
make sure you own the first batch of currency and get rich if it takes off. If
you need investment then you don't really believe in your own stuff do you?

Ponzi Ponzi Ponzi.

~~~
duxup
That guy on TV keeps telling me how awesome owning gold is... it is so awesome
he wants to sell me his...

~~~
flimflamfloozle
That guy on TV is a broker. He doesn't want to hold any gold. He wants to sell
and buy at the same time and make money off of the spread.

~~~
dmix
Not sure if the answer is obvious here but I don't know much about finance,
does 'spread' here mean the difference in the asset price from purchase/sale
time (whether by market change or artificial markup) or the brokering fees
involved? or both?

~~~
hellbanner
#2:

Any vendor will buy a good at say, $9 and sell at $10. In the US there are
many pawn shops saying "We buy and sell gold!" \- it's never at the same
price.

#1: A smart gold trader will buy low, sell high.. they will buy more gold when
prices are low and advertise to sell more when the price is high.

------
nipponese
The problem is projects like these: [http://bitqyck.me/](http://bitqyck.me/) A
classic hard-sell 80s pump and dump scam reborn in the ETH era. Bitqyck came
to my attention through a family friend with very limited understanding of
cryptocurrency, but just enough financial literacy to be in an investment
group being fed these scams by people they trust as technical leadership. I
imagine, ultimately, these people will demand protection from having to vet
ICOs themselves, and twenty years later there will be an awesome movie about
this time starring Leo DiCaprio.

~~~
ajross
The _problem_ is the whole idea of cryptocurrency as a growth investment. The
symptom is a bunch of copycat scams trying to freeload on the broader market.
Without the bull market of the early '90's, Belfort would have had no one to
sell to. Same deal here. The root cause is the insanity happening in bitcoin
(and now Ethereal, I guess).

Mark my words: this will all come crashing down. I can't tell you when or why,
but it's not sustainable. Probably it will happen in a way that makes the
bitcoin nerds "right" in some sense of personal justice: the PRC will close
the great firewall to bitcoin traffic, or backdoor the protocol in some
unsupportable way. Or the SEC will shut it down somehow.

So sure: when the crash happens cryptocurrency "would have worked" if not for
the meddling government. But it will fail nonetheless, and all those people
(again, most of whom are not investors in scams like bitqyck) are going to
lose all their "money".

~~~
eterm
The worst of is that early adopters will cash out boat loads of money and use
that fact to claim they were right all along, as if somehow the top of the
pyramid making money proves it's not a pyramid.

~~~
Radim

      Mark my words: this will all come crashing down. I can't tell you when or why, but it's not sustainable.
    

The irony: lots of people feel the same way about the "real" debt-based modern
economy. A ridiculous Ponzi scheme, clearly unsustainable in the long run.

As always, the time horizon matters when talking about investments and
sustainability. Given the right time window, everything works, and everything
fails.

~~~
suzzer99
Let me know when BTC is backed by tanks and fighter jets.

~~~
cinquemb
Only a matter of time until a group like shadowbrokers in some sense has ICO
for managing rooted military/civilian infrastructure and occasionally
"deploying"/commandeering (and supply chain, because jets and tanks wont work
very long without such) around the world…

------
utnick
If you want to really see what the environment is like now, read the
bitcointalk ico announcement threads. It's absolutely insane. Very little of
that stuff makes its way to hn.

People are raising money with 10 page vague 'white papers' with ideas that
make no sense or are completely unworkable on the blockchain.

There is very little skepticism or research with these icos . Most of the
commenters are trying to help the project and receive tokens in return, do
tasks to qualify for free tokens ( bounties ) , or promote the ico so their
token value increases

If there was a good way to short individual ico tokens it might bring some
sanity

~~~
api
How much of the money raised actually exists as liquid and accessible? Is this
just a big MMO?

~~~
tylersmith
According to coinmarketcap.com volumes on gdax for btc and eth and $115mm and
$53mm over the past 24hrs. If you didn't want to increase overall volume by
more than 10% you could sell out to USD around $12.5mm btc and $5.3mm eth per
day.

~~~
runeks
Volume is not liquidity. You can’t deduce anything about the impact of a $10mm
ETH market sell from looking at volume.

If you dump $5mm ETH on the GDAX ETHUSD market right now, the price would fall
from $290 to $250[1].

[1] [https://www.gdax.com/trade/ETH-USD](https://www.gdax.com/trade/ETH-USD)
(click “depth chart” in upper right corner)

------
the_stc
The SEC guidance galvanized us on not offering tokens. Instead, we are going
to offer shares directly in the company, even if they are mostly issued via an
ERC20 contract. If we are going to get heat from the SEC, might as well go all
out and issue proper shares.

Plus tokens don't even make sense most of the time. You can't buy a Tesla car
with TSLA and you do not get dividends/trading with a car. And no one outside
kids at Chuck E Cheese want to use venue-specific currency.

~~~
runeks
I’m not particularly knowledgeable on the subject, but isn’t the purpose of
the SEC to prevent unauthorized entities from selling securities — including
company shares — to people?

~~~
the_stc
You are correct. If we're going to violate SEC rules then we might as well do
it right. Instead of dancing around the topic, using IP bans and a wink-
wink-I'm-not-a-US-citizen box, issuing tokens for services that totally aren't
investments, we'll just come right out and offer shares with dividends and
voting. This was our plan all along, but the SEC guidance just made it more
obviously correct one.

------
ringaroundthetx
Even the SEC realizes that not all token sales are securities. Some people in
the industry simply aren't getting it, they are creating a straw man which the
agency isn't even arguing for.

> The agency said that it would focus on coins that should be categorized as
> securities.

So there are all these people on the periphery just HOPING for their prophecy
of a heavy handed government breaking the cryptocurrency rush.

They read the headlines.

They create the headlines.

They purposefully don't read the SEC report or consider any information to the
contrary of what they are expecting.

Despite S.E.C. WARNING? This is an article about everyone getting smarter and
restructuring their offering where necessary, and continuing to move forward.

Even the WARNING in the SEC's DAO report two weeks ago acknowledged that not
all token offerings were securities. But detractors and regulated entities
with a legitimate reason to be skittish, used it as the WELP SHOW'S OVER GUYS
argument which is completely unfounded.

> Nick Morgan, formerly a lawyer in the S.E.C.’s enforcement division, said
> that the security label was likely to apply to any coin that an investor
> buys with the expectation that it will increase in value as a result of the
> efforts of the entrepreneurs who created it.

The SEC still answers to the courts, and this consolidation of capital will
allow these new organizations to take it to the courts efficiently. The Howey
test from the 1940s did not consider this kind of asset to ever exist. It
isn't an end all be all, it is a test.

The SEC is not mandated by Congress to undermine interstate commerce, it is
created to provide confidence. So far, they've been playing it smart.

~~~
kgwgk
Matt Levine, today: [https://www.bloomberg.com/view/articles/2017-08-08/ico-
risks...](https://www.bloomberg.com/view/articles/2017-08-08/ico-risks-and-
wells-fargo-mistakes)

"To me, it seems odd that people would pay millions of dollars to reserve
space on a new cloud storage network, and obvious that they're really paying
that money for a speculative investment."

"If you do an illegal securities offering, people who bought your securities
have a right to get their money back. If token prices keep rising everywhere,
this is not a big concern -- why would anyone want their money back when they
have such valuable cloud storage? But if the ICO mania fades, expect a lot of
lawsuits from investors who are shocked to learn that they were buying
unregistered securities."

~~~
graedus
Off-topic, sorry: Levine gets a lot of praise around here, and he does have a
great talent for breaking down complex finance topics so that they're easy to
understand and often entertaining to read about. That being said, sometimes he
is _awfully_ sanguine about bank misconduct and crimes. Edit: from the
article:

"A bank that keeps very careful track of how much money it has, and who owes
it money and whom it owes money, and sometimes does evil stuff with that
knowledge -- that's fine, really."

~~~
joosters
That's an unfair quote, taken completely out of context. His articles
frequently cover fraud and illegality in the financial markets, and he's never
in favour of it.

The quote in question was pointing out how bad the latest Wells Fargo scandal
is. A bank that can't keep track of money is in serious trouble and is
woefully incompetent. The banks ripping off customers but accounting for the
profits are evil, but at least they are being competent.

~~~
graedus
I think even with the broader context it doesn't sit right with me, because he
could have easily made the completely serious and valid point about banks
needing to be competent at their core functions without characterizing "doing
evil stuff sometimes" as "fine". Totally possible that my sarcasm detector is
broken right now but it seems like he's "only half-joking" here (another of
his favorite phrases).

------
anovikov
Most ICOs usually exclude Americans. Because these scamsters know it's a bad
idea to get Uncle Sam angry.

~~~
joosters
Bizarrely, some of these non-American ICOs still advertise in the US. I can't
remember the exact ICOs, but some have paid for billboard ads, taxi ads, and
so on. I suspect that the 'no Americans' is just a tickbox that they know is
easy for their investors to ignore.

~~~
kristofferR
Yeah, EOS had both a Times Square ad and a no US investor policy:
[https://twitter.com/jeffscottward/status/879434713114578946](https://twitter.com/jeffscottward/status/879434713114578946)

~~~
hammock
There might be more foreigners in Times Square than Americans, actually.

------
blhack
To put it into perspective, the tezos ICO recently raised a little more than
$200,000,000 worth of BTC and ETH.

Here's their twitter:
[https://twitter.com/tez0s?lang=en](https://twitter.com/tez0s?lang=en)

Here's their subreddit:
[https://reddit.com/r/tezos](https://reddit.com/r/tezos)

Here's their website: [https://tezos.com](https://tezos.com)

It doesn't look like they have really updated anybody on what they're doing
with $200,000,000 since their ICO closed.

~~~
SilasX
Why are people throwing money at these? It makes no sense. You have no
guarantee that they won't just run off with the money, except your trust in
the operators.

~~~
proofofstake
> Why are people throwing money at these?

Futures for Tezos are already trading at 6x the amount people invested during
ICO.

> It makes no sense.

In the short term it makes a lot of sense (600% ROI). In the long term: An
Ethereum based on OCaml has an interesting potential.

> You have no guarantee that they won't just run off with the money

If the developers are not anonymous, while no guarantee, it makes it less
likely. When you cross the road you also have no guarantee that the cars won't
run you over. Some amount of trust is needed, whether for money or your entire
life. Benefit of crypto is that you don't necessarily need to rely on trust. I
doubt Tezos has contractual access to all the money they received, or are
allowed to dump their shares as soon as it starts trading for real.

~~~
flunhat
Can you, in one sentence, explain what Tezos is? Something of the form:

Uber - Order a taxi with your phone

Facebook - Connect with your friends online

Google - Find stuff on the internet

Wikipedia - An encyclopedia that anyone can edit

Amazon - Buy stuff online, without going anywhere

Tezos - ???

(And "Tezos is a new decentralized blockchain that governs itself by
establishing a true digital commonwealth" doesn't count as an explanation).

~~~
taysic
It's a competitor to ethereum - a place to create more ICOs basically from
what I understand. Maybe they're running out of ideas

~~~
discombobulate
Token sales may end up being worth a ton of money. There's going to be
competition.

------
vanattab
I am thinking a short position in bitcoin is in my near future. I am not
saying bitcoin is doomed to fail but I am pretty confident this shit coin
crazy is going to hit the fan sooner or later and it's going to drag the
"legitimate" crypto currencies down.

~~~
walrus1066
Beware that:

“The market can stay irrational longer than you can stay solvent.” (John
Maynard Keynes)

Especially relevant to short selling

~~~
ovulator
Shorting has got to be the dumbest way to invest. With a normal investment
there is a ceiling to how much you can lose (the amount you invested) but
there is no ceiling to how much you can gain.

The complete opposite is true for shorting, not a bet I would make on any
certainty level.

~~~
arcticfox
You can just artificially limit your losses by bailing out when you lose as
much as you shorted.

You run a small / theoretical risk of getting stuck in a short squeeze
situation where you can't get out, but that risk varies substantially by
security and there are often laws or mechanisms you can use to protect
yourself.

~~~
honestlyreally
Crypto currency is the wild west,there's no one coming to save you, exchanges
and whales have access to the books on who they can squeeze.

Its how many operate.

------
SeanDav
There is a great bit of anecdotal advice for situations like this:

"When your hairdresser starts discussing it, it is time to get out..."

[https://blogs.cfainstitute.org/investor/2014/02/10/top-
anecd...](https://blogs.cfainstitute.org/investor/2014/02/10/top-anecdotal-
signs-of-a-market-bubble/)

------
gaetanrickter
Add to this "Beyond Bitcoin: Overstock Lets Customers Pay With More Than 40
Alt Coins" [http://fortune.com/2017/08/08/overstock-digital-
currency/](http://fortune.com/2017/08/08/overstock-digital-currency/)

~~~
jgalt212
huh?

> Out of the leading 500 internet sellers, just three accept bitcoin, down
> from five last year.

[http://www.businessinsider.com/merchants-arent-accepting-
bit...](http://www.businessinsider.com/merchants-arent-accepting-
bitcoin-2017-7)

------
api
Is there an honest non-scummy way to raise capital through this mechanism for
something without an inherent scarcity built into the system and that doesn't
carry nasty future litigation risks (or at least doesn't carry them more than
a SAFE or a convertible note)?

My impression so far is no but I could be wrong.

~~~
joosters
None so far. There's plenty of crowdfunding sites that could be used instead,
but ICOs allow the companies to raise money before they even produce a beta of
their software. They also have no investor protection, so the company has no
obligations to deliver. Finally, these people know that there is a pool of
investors out there who think that crypto coins are bound to increase in
value, so they will throw money at any new coin.

------
dustingetz
Aren't all these people just going to be arrested?

It's not illegal today, but it will be soon enough, and when you piss off
powerful people they find a way to shut you down, one way or another.

~~~
wmf
The SEC's point is that it is already illegal today, and only the most
egregious ones (e.g. Trendon Shavers, Charlie Shrem, Alexander Vinnik) will be
criminally prosecuted.

------
whytaka
How exactly are ICOs performed?

1) Set up mining software.

2) Start running it on your own machines and mine enough tokens for ICO.

3) Sell tokens. Profit. ??

Are investors at some point invited to run the mining chain on their own
machines? Surely they don't just trust that the company raising money will do
manage the accounting on their own.

~~~
alistproducer2
Most are ERC20[0] tokens with a promise to convert them to the projects native
token when their blockchain is stood up.

[0]:
[https://theethereum.wiki/w/index.php/ERC20_Token_Standard](https://theethereum.wiki/w/index.php/ERC20_Token_Standard)

------
d3vnet
So how about making investors explicitly state that they are not US persons?

~~~
polotics
Makes no difference I think. Burden of proof is on the emitter. Matt Levine at
Bloomberg has it explained perfectly: The ICO emitters seem to have no idea
that once the SEC declares an ICO to be a security, any US-person investor who
had put their money in such an _unregistered_ security and lost some, is
entitled by the full force of the law to all of their $, paid back in full...

~~~
rothbardrand
All of their $ or all of their ETH? Most ICOs don't take $.

~~~
JumpCrisscross
> _All of their $ or all of their ETH? Most ICOs don 't take $. reply_

Doesn't matter. Delaware law has allowed contributions "in kind," _e.g._ with
labour. When something goes wrong, the promoter has to pay cash restitution,
penalties and, often, legal fees.

 _Disclaimer: I am not a lawyer. This is not legal nor securities advice._

------
mindfulplay
I started with quarters years ago before it was cool.

