So are we in an ICO bubble right now and is it going to pop?
With the sheer amount of money going into ICOs nowadays and everyone and their mothers wanting a piece of that ICO pie, there are legit fears going around of ICO being a bubble much like the dot com bubble and the real estate bubble. To understand how a bubble works, let’s look at one of the most famous examples of the bubble, the dot-com bubble which went from 1997-2002.
Around 1997, the internet became big and tech companies began to emerge everywhere. Investors started putting in their money and flipping their investments into huge sums. Eventually, everyone who saw this started getting major FOMO (fear of missing out) and they began giving away their money to companies without even having any idea as to whether the business had the potential to work or not. Common sense went out of the window and every random internet business was making a killing in the IPOs. Warren Buffet noted that:
“The fact is that a bubble market has allowed the creation of bubble companies, entities designed more with an eye to making money off investors rather than for them. Too often, an IPO, not profits, was the primary goal of a company’s promoters.”.
BOOM! He hit the nail right on the head, most of the companies that got millions from their investors failed and some turned out to be nothing more than scams. Eventually, the bubble burst in 2002.
Companies crashed and lost millions within a year. One of the most infamous examples of this is Pets.Com which lost $300 million in just 268 days! However, while 1 in 2 companies got shut down, the companies that did survive, hung on and changed the way we live today. One of the best examples of that is Amazon. Before the bubble burst, Amazon stocks were at $100/share. After the burst, it went down to $7/share but eventually, it went up to $600/share.
The parallels between the ICO bubble and the dot-com bubble are a bit frightening and as they say “if you don’t learn from history, it is going to repeat itself.” Much like dot-coms, the ICOs have attracted a lot of investors who don’t want to miss out on the gold rush. Much like the dot-coms ALL the investing is done purely from speculation. You have to realize that most of the companies that you are investing in, in ICOs barely have anything ready. Most of them don’t have the alpha version of their end result, it is all based on speculation and the potential of the project.
As with anything, most of these projects will fail to get the end results. The reason why the Ethereum ICO worked so wonderfully was that it had a dedicated and driven team of talented developers who were a day in and day out to make it a success, same with Golem. Another problem plaguing the ICO is the greed of the developers. Some developers are making projects ONLY so that it can look enticing enough for a good ICO. They have no interest in carrying through nor do they have any inclination of turning a profit for their investors.
The parallels are very apparent and it can get real scary thinking about it. But we are not market experts. All we can do is speculate. We don’t know whether we are living in the “ICO bubble” or not, nor do we know whether it is a bubble that is going to pop. What we can tell you to do is to be smart with your money. Don’t get enticed by shiny objects, and have basic common sense. Read the points we have given above to know whether an ICO is a scam or not.
So if I am a developer how should I approach ICOs?
If you are a developer, then first and foremost have a very clear idea and agenda as to what your project is and what do you want to do with it. You must state the purpose of your project and the future that you envision with it. You must also choose the platform that you want to advertise your ICO in (waves, iconomi etc.) and then you must design your tokens.
After you are done creating your white paper and running it through the advisors and getting legal backing, the most important thing that you need to do is to pick a good time and date. Nothing kills an ICO faster than not getting the timing right. So when selecting the time of the ICO to keep the following points in mind:
a. Do not choose holiday weeks or weeks when important people take off: You need as much hype as possible and the best investors for your ICO. Do not hold your ICO during spring break when most people, including reporters, take off. Similarly, if there is an important event around the week then it’s best to not have your ICO during that time. As Margaux Avedisian says, if your main investors are going to be in The Burning Man, then it is best to not have your ICO during that week,
b. Day of the week: You must notify the working patterns of your target investors and see which day best suits them. It is best to not choose a weekend for your ICO.
c. Time Cap: While there are some ICOs that meet their target in 10 mins or even 35 seconds, those are the rarest of the rare scenarios. Even the Ethereum ICO took 42 days, even though that was before ICOs became so popular. So you have to decide on the time cap and the amount of time that you are willing to run your ICO for.
d. Time Zone: If your target investors are Americans and then it makes little to no sense to have your ICO during midnight EST. Decide where you want your target investors to be from and decide on a time that will be convenient for them.