Use ICOs to Find the Next Bitcoin(s)

Dear Early Investor,

Picture this. If you had put a small $100 stake in bitcoin in 2010, that investment would be up a whopping 8,097% today!

Bitcoin is a cryptocurrency. (Check out this write-up on cryptocurrencies from our friends at Investment U.) Essentially, bitcoin is a digital way to store and transfer value. You can easily exchange bitcoin and other cryptocurrencies with traditional currencies all over the world.

There will only ever be 21 million bitcoins. You can’t counterfeit them because everyone in the network has a copy of all transactions, and you can prove ownership using the blockchain and cryptography.

As I write this, each bitcoin is worth around $8,100. That’s up from $.008 in mid-2010.

Bitcoin is up 1,010% over the last 12 months. Competing token Ethereum is up 3,659% over the same period and now boasts a market cap of more than $35 billion.

Many people are drawn to the “decentralized” nature of bitcoin and other cryptocurrencies – that is, the fact that they can be used like currency, but aren’t controlled by governments.

Big Bold Ideas

Some believe these “coins” will become the world’s new reserve currencies. Others are convinced that tokens like Ethereum will transform the way finance and the internet work. These are ideas with such big implications that most people have laughed them off over the years.

Yet the cryptocurrency market is on fire. The entire market’s value just surpassed $232 billion. Bitcoin accounts for around $138 billion of that total.

Thousands of bitcoin competitors have launched over the past few years.

The result is that bitcoin is no longer the only serious game in town. And more coins and tokens are launching every day.

ICO

This past summer, a startup called Brave raised $33 million in 30 seconds through an initial coin offering (ICO).

Brave’s token is called the Basic Attention Token (BAT). It aims to revolutionize the way advertising works so that it’s all powered by BAT and run on its proprietary web browser.

The company sold 1 billion coins in its $35 million offering, which sold out almost immediately. Brave will hold on to 500 million tokens to pay for further development of the network. Last I checked, BAT had risen around 600% since the ICO, and it already trades on dozens of exchanges.

Read more about Brave’s ICO here.

Getting Ahead of Itself?

This is extremely exciting stuff. It’s a new way to raise money for a new type of business. But we’re going a little too fast for my liking.

Ethereum is incredibly promising. But is it really worth $35 billion? It seems a bit much. Too fast.

And now it seems like almost every day there’s a new ICO. Most of the offerings are mediocre, while some look like downright scams.

But there is the occasional offering like Brave, which seems to have real potential. Civic.com’s upcoming ICO looks promising as well.

We will be following this market closely going forward. It’s one of the most unique, profitable and potentially disruptive high-risk phenomena I’ve ever seen.

Note: The legal aspects surrounding all of this are far from clear. We don’t know how regulators will react to the boom in ICOs. But a reaction is inevitable once a few of these go horribly wrong. (There have already been a few bad events.)

Going in, you should also realize that these ICOs are not like equity crowdfunding, which is regulated and secure. Also realize that with ICOs, you’re not buying equity. You’re buying a new type of asset (a token or cryptocurrency) that powers a completely new type of business.

Do your own due diligence on all ICOs. And realize that if you’re not tech savvy, you’re going to have a tough time securing your digital assets.

Equity crowdfunding is still by far the best way to get a stake in upcoming businesses. But ICOs sure are fun to dabble in.

Here are four takeaways when it comes to ICOs…

  • ICOs are one of the most unique, profitable and potentially disruptive high-risk phenomena I’ve ever seen.
  • ICOs are not like equity crowdfunding where startups and investors have to comply with a series of regulations.
  • You’re not buying equity. You’re buying a new type of asset (a token or cryptocurrency) that powers a completely new type of business.
  • You need a system to sift through the noise. As an early adopter of cryptocurrencies, I have devised a system that avoids mediocre opportunities and scams.

Good investing,

Adam Sharp
Co-Founder, Early Investing