Initial Coin Offering has caught the attention of every kind of investor, whether passive, active or even the radical kind. The stupendous returns generated from investing in an ICO can be overwhelming. Recently, Bitcoin – the first cryptocurrency on the blockchain platform, has shown itself resilient to the challenges surrounding it, from regulation talks to difficult mining operations, slow transaction processing ordeals and many more strides that have in the course of its existence challenged its very core.
However, it has soared in price at an exceedingly improbable manner, such that many even consider the price volatility as a result of its inelasticity. Many have gone ahead and made bullish speculations on behalf of the coin, while others have even considered betting against bitcoin short.
All the more, the bitcoin cryptocurrency has appreciated to over 5,000,000x its starting value. This singular factor is responsible for the struggle in the crypto-world, such that every cryptocurrency is stuck with the bullish mentality despite experiencing a bearish trend for a consistent period of time. The fate of all ICOs is tied to a number of factors that bear significant influence on the entire crypto ecosystem.
Over the course of time, initial coin offerings have had to adapt to their operational models, as economic and financial analyst make it easy to assess the finite limitations that surround ICO successes. Therefore, to participate in any ICO, an investor must bear in mind the conditions influencing the ICO community as a whole comparatively to already existing cryptocurrencies with real-world applications.
One very strong question on the mind of every investor is whether a cryptocurrency or token once it hits the exchange market would start up the chart or decline, while it is a trend for some cryptos to maintain slight decline at first, due to initial pump and dump cycles, it is hard to predict the fate of any ICO.
This impacts how investors respond to ICOs and limits their participation due to the numerous token projects that have been released within the space of 4 years – over 200, and still counting. Many investors are beginning to take the bearish positions, as too many cryptocurrencies and tokens with little to offer and no real-world value really impacts the ICO economy.
Most people do it for the money: The blockchain technology has been overhyped and limited its true purpose. While the technology is considered a decentralized ledger system that is immutable, it has become a tool for most investors and developers to manipulate the financial and economic system to their personal gains at the detriment of either genuine project prospects in terms in real-world applications or blatant exploitation and economic scheming.
Most investors who dive into the crypto world do it because of personal interest and they hurl huge amounts of money during crowdsales and dump right after the tokens hit the nearest exchange. While other small-time investors who truly believe in the projects are left in despair, especially when the startup seems to find it challenging to make a decent price worth on the exchange months later.
The blockchain system is not all about profit; most crypto investors seem to have ignored this valued insight and manipulate their ways through crypto-sphere reaping from all the ICOs they can lay their hands on. This, however, affects genuine projects from making the mainstream adoption.
Since the first cryptocurrency was limited to financial peer-to-peer transaction protocol, other investors and some few developers have constrained the scope of blockchain technology and have had their eyes on the monetary values alone ignoring what real-world problems can be solved using development technology like the blockchain.
From another angle, the blockchain is a new technology trend with new vocabularies and quite a complexity for laypersons to understand and apply to real-world application. Oftentimes, developers have to water down, simplify and almost lose the efficacy of meaning in the process.
This has sometimes been the reason why blockchain system has been misconstrued for financial liberty. While it is true that financial liberty can be obtained, that has never been the true purpose of the technology, and this has invariably limited initial coin offerings potentials.
The fear of most jurisdictions is the economic impact these ICOs have on their legal system, an unregulated means of fundraising can really affect the way financial crimes and laws are pursued. Most jurisdictions have had to ban their citizens from participating due to regulatory defaults. An out-of-control system cannot be trusted, however, this is the basis of decentralization, a trustless and not-controllable system fully reliant on an AI algorithm to function and breach the gap of human deficiencies.
Despite this, one can hardly believe that there is no centralization in the decentralized system, there has to be someone or something that issues an ultimate rule of play, otherwise, the DAO would have been a perfect example of an uncontrolled system considering human factors.
Most initial coin offerings use smart contract protocols to run their campaign and so far, it has been an edge for both investors and project developers. However, this dependency has revealed that the system still needs fine-tuning to truly maximize the potential it offers the system. As once the contract has been coded, it cannot be adjusted for new variables, other than that a new contract be coded and the old one must contain a reference to it from the start.
So, the complexity doesn’t account for contingencies. In the real-world system, contracts are adjustable and make it easy for human interventions. While this may be termed as a breach in contract, it does come in handy when there were unforeseen circumstances in the original contracts and needs to be adjusted to accommodate new developments.
The world as a whole is still a long way off from mainstream adoption, as the current knowledge-base is still not sufficient for economic safety. Probably, the main question here should be how does this arcane crypto investment system relate to the mainstream granddad investor. Those who are accustomed to the over the counter investment system, now having to deal with smart contracts, blockchain wallets, transaction fees, transaction hash, shapeshifting, etc., only the tech-savvy can freely move in this ecosystem.
Moreover, Initial Public Offering presents a kind of investment security, unlike analog initial coin offerings. Unlike the counterpart crowdfunding system – IPO, initial coin offerings have unconventional methods of sourcing for funds and though they present technical documentation, the less inclined investor factions are quite pessimistic about the concept, some even consider it a huge bubble of all times, as it presents unwarranted high-risk values, unpredictability, and uncertainties.
Despite the recurring profit growth margin in some successful cryptocurrencies, it is hard to still imagine the speculative grudge and bearish perception the most of the investment community have towards cryptocurrencies as a whole, let alone initial coin offerings. Peradventure, maybe not too long from now, once regulation and standardization of blockchain ecosystem are in place; adoption will pick up the pace at a rather positive remark.
Volatility is the most limiting factors affecting cryptocurrencies and their derivative initial coin offerings, it plays a complex role in determining which token makes it to the mainstream.
Every initial coin offering aims to become a tradable coin someday, and a valuable one in that respect. However, looking at the market cap of crypto assets and carefully observing their price index chart, one would notice the relativity in price volatility. The top leading cryptocurrencies make it hard for other newly joined coins to make strides favorably. Oftentimes, the prices of these the newly added coins are adjusted against top cryptos and pose a significant limitation on ICOs, as the development team would always use this index to weigh their entry points into the market space.
As an example, bitcoin’s bullish trend and a sharp spike in prices have a way of affecting other cryptocurrencies and due to volatility issues, if a particular ICO decides to accept bitcoin, it could affect their productivity when correction sets in. On the other hand, when other cryptocurrencies have dipped, it is sort of an advantage for ICOs who would accept them when they are of low prices, assuming the prices will rise again around the time when the project is expected to commence.
However, most of the ICOs have adopted a mechanism to counterbalance this effect by having a range of token sales cap that is adjusted to mitigate the influence of volatility during their crowdsales.
Another limitation caused by price volatility is the tethering of tokens to a particular currency during crowdsale. This affects the amount of tokens bought relative to the investor’s emotional overlay. For example, if a particular token is pegged at 100unit to $1, which makes it a constant, and the project accepts only one payment method, the investors might have to wait until the prices of accepted payment have appreciated in value before investing, in order to buy more token worth.
On the other hand, if the project accepts multiple payment systems, the tendency for investors to shift towards a preferred (high-value cryptocurrency) is always the case, that is they will choose to invest with more dollar value than more crypto decimals. Say, for example, 100 unit of a particular token is worth $1 USD, the investor will look for cryptos with smaller decimal fractions of the same worth than using one with higher digits whose worth may increase in the near future.