In the Broadway hit (and film) The Cocoanuts, about the 1920s Florida land boom, Groucho Marx describes the many housing types available in his own scam land deal.
“You can even get stucco,” he jokes. “Boy, can you get stuck-o.”
A lot of investors are getting stuck-o today in Initial Coin Offerings (ICOs), public offerings of new company shares in exchange for cryptocurrency, usually Ethereum (ETH).
Unlike Initial Public Offerings (IPOs), ICOs are completely unregulated. As with Bitcoin, they’re global. They’re governed by contracts and goodwill, both difficult to guarantee. But they have been so successful they’re luring a lot of people who should know better into the game.
Take Arsenal Football Club. They just signed a deal to promote CashBet, a coin designed for sports betting.
Sounds Crazy? You Bet
CashBet is a U.S. company. Sports betting is illegal in most of the U.S., although it’s perfectly legal in the UK. Arsenal will promote the ICO at its Stadium and offer the images of its players in CashBet ads. Alexis Sanchez got out just in time.
Even as the prices of cryptocurrency have turned down in 2018, the ICO market has continued to heat up, raising $450 million just this month.
The largest of these ICOs has been for Envion, which has raised about $100 million in order to create a mobile mining device that lets cryptominers exploit “green energy.”
The CEO is a renewable energy investor named Mattias Woestmann. Everyone else is green as in they haven’t been here before. ICO Crunch, which analyzes ICO projects, reviewed them recently and found lots of unanswered questions, the kind that would sink most companies seeking a public listing.
But an ICO is not a public listing. That’s something anyone considering an ICO investment needs to understand. These investments are not very liquid. It will be hard to get out if things go bad. And the risks are huge.
Boy, Can You Get Stuck-O
Ernst & Young recently analyzed the last three years of ICOs and found that 10% of the coins raised were subsequently stolen by hackers. Their sites are attacked 100 times each month. ICO investors are also frequent subjects of phishing attacks, e-mails asking for personal details that are then used to steal assets.
The people selling ICOs may themselves be crooks. A crook may call himself a guru, and a New York company may claim to be from Las Vegas. Journals covering cryptocurrency are filled with stories of companies like Benebit, which may have run off with $2.7 million of investor money.
The Securities and Exchange Commission has launched a “cyber” unit to go after ICO crooks, filing its first charges in December, but they’re well behind the bad guys and, as the market is global their reach is limited anyway.
Even legitimate public companies can get caught in the act. Eastman Kodak Company Common New (NYSE:KODK) tripled in price early this month after it announced KODAKOne and KODAKCoin, said to be a platform for getting photographers paid for their work.
The announcement brought in about $300 million of new public investment to Kodak. This despite the ICO being a re-branding of a previously-failed launch with Kodak receiving precisely zero dollars from the proceeds. The ICO sponsor was just licensing the name.
The Bottom Line
As scammy as the cryptocoin market may be, the ICO market is even scammier. Success today is measured by sponsors getting their coins. They’re not measured by investors getting a return.
Yes, you can indeed get stuck-o.
Dana Blankenhorn is a financial and technology journalist. He is the author of a mystery novella involving Bitcoin, The Reluctant Detective Saves the World , available now at the Amazon Kindle store. Write him at danablankenhorn@gmail.com or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story. To follow the value of crypto currencies bookmark https://coinmarketcap.com/
