Have you recently had cold feet when deciding to put money in any cryptocurrency? Have you lately passed up investing in Initial Coin Offerings (ICO) because of scam alerts? Are you anticipating Bitcoin’s price rise to bring back your confidence in crypto?
Don’t answer now. We will conclude well, I promise.
It is a dull time in the cryptocurrency market. The bears have been dominating the market since December 2017 when Bitcoin hit an all-time high of $19,600. Records show it is the longest bear market run with well over 420 days. Despite this, there have been positive events.
Initial Exchange Offerings (IEO) are the latest buzz in crypto news. Fetch.AI raised $6 million in 22 seconds. Yes. 22 seconds! How did they do this? They used Binance Launchpad to make this a funding reality.
So what is an Initial Exchange Offering? This is a form of ICO but run through an exchange as the intermediary conducting the sale.
IEOs have injected a big interest and money into the market but how will they impact the market? Are the effects going to be for the better and long-term? Let’s look at the likely negative and positive impacts IEOs will have.
The ICO market has been laden with a majority of fake projects with no solid fundamentals. A study by Satis Group claims 80% of all ICOs launched last year were scams. Only 8% make it to the exchanges. This is bad for investor confidence.
The success of recent IEOs like Veriblock has created interest. This has caused more account sign-ups and appetite to take part in upcoming IEOs.
Large exchanges like Binance and Bittrex do thorough due diligence on IEOs. Exchanges want to protect their reputation to their current clients and to prospects. The best way is to analyze the whole project on technical and financial fundamentals. For the slightest doubt on the project, the IEO halts. This is what happened to Raiden.
Does This Method Foster Equality?
IEOs do not promote equality and decentralization in investing. This is how.
Every account holder has the least amount of tokens to buy but people have devised methods to beat the system.
Investment groups and pools have formed to buy tokens in bulk. With joint funds, they would have a huge purchasing power to crush the appetite of one investor.
The other unfair advantage is the use of scripts and buying bots to fill out participation forms. So a project team raises huge amounts of capital in unimaginable time periods. But, a lone investor would have a fat chance against a consortium with big money and tricks.
Exchanges Benefit More Than Contributors
For one to take part in an IEO, you need to open an account with the issuing exchange. You also need to buy the exchanges token. A good example is the need to have BNB to take part in an IEO on Binance Launchpad. The more BNB you have, the more tokens you can buy of the project seeking funds.
That means the price of BNB will surge because of increased demand. A sole contributor buys BNB with high prices and spends more money to get the most tokens for the new project. Besides this, he has to work within 22 seconds or he will miss out on the IEO.
Liquidity and Speculation Gain
A win-win situation is always ideal in any business transaction. Fundraisers gain by getting immediate liquidity and a ready product user base.
Contributors trust that the tokens bought will immediately trade on the exchange. Many ICO investors have lost their money to scam projects that never saw the light of a crypto exchange. Trading on a big and popular exchange is precious. It guarantees token holders that they can get a profit upon price rise.
Risk of Investing In Copy and Paste IEOs
Binance made a success of utilizing IEOs to help startups raise funds. They put Fetch.AI and BitTorrent on the spot as good examples.
Small exchanges (for example OKex and Bibox) started their own Initial Exchange departments. But, are these exchanges equipped to match the job done by Binance? Can an investor trust in their due diligence and protection from scams? A camouflaged ICO market that is full of exchanges promoting scam projects is at risk.
ICOs Spurred the Growth of Bitcoin and the Altcoin Market
Many projects raised capital by getting Bitcoin and Ethereum from their investors. The demand for these cryptocurrencies rose, causing their prices to follow suit. When Bitcoin rises in price so do other altcoins. This generally drives the market capitalization up due to increased trading.
Can IEOs replicate this as seen in 2017? For now, it’s clear that exchanges will benefit with more clients and a rise in price for their own tokens. IEOs can’t affect the price of Bitcoin in so far as causing a general upward trend in prices.
The basics still stand the test of time when investing in cryptocurrency projects. It is vital for you to do your own research be it an ICO or IEO.
IEOs have brought back trust. But, with more exchanges launching IEOs, invest money you can afford to lose. Monitor and watch if all projects that use IEOs will yield a good return on capital outlay. Only then can IEOs rank higher than ICOs to bring a positive change in the market.