First, a disclaimer: the SEC’s decision to begin regulating the cryptocurrency market and the various working groups set up to develop useful applications are signs that, at some stage, this market might actually produce some of its promised #disruption after all.
And plenty of the 120 cryptocurrency offerings currently listed on coinschedule.com may indeed be viable, lucrative investment opportunities.
But many publish only a whitepaper with far lower standards of disclosure than required by conventional investors. Most projects turning up with such scanty documentation about their business model would be laughed out of any respectable venture capitalist’s office.
Only a scant few are actually touting applications that require blockchain/distributed ledger technology to work. Many are simply redoing established ideas with a glossy blockchain finish and scooping up the cash of excited crypto investors.
In short, the cryptocurrency market, whatever merit it might eventually have, is still something of a circus. Here are nine of the attractions:
1. Celebrity endorsements
What do The Game, Dennis Rodman and Floyd Mayweather have in common? Yes that’s right, they are all guests at my dream dinner party, but there’s something else too. All three have endorsed initial coin offerings, promoting sales of crypto tokens.
Rap star The Game has teamed up with Paragon and Miss Iowa 2014 ahead of the marijuana company’s initial coin offering. Former NBA star Dennis Rodman made one of his bizarrely frequent trips to North Korea sponsored by PotCoin, another cryptocurrency for the cannabis industry and all-time great boxer and IRS nightmare Floyd Mayweather is promoting stox.com’s ICO.
2. Of course, there’s a racist thing…
A “whites only” town in South Africa is planning to launch e-ora, a digital version of its currency to use in the town.
3. And a religion thing…
BitCoen, a cryptocurrency marketed explicitly to Jewish investors, is set to launch in September.
4. A big fish tank
There’s a serious point to be made here. Blockchain, with its potential to create decentralised applications, has potential to disrupt current business models.
As such, investing in cryptocurrencies should be based on the expected merit of the decentralised application the tokens facilitate. Ideally, this should be one of the rare industries that would be improved by the removal of a trusted central administrator.
It should not be, say, a big fish tank, and yet Paquarium has raised over $600,000 with an ICO funding just that. The whitepaper does say it's "something greater" and "a symbol", but it is actually a big fish tank.
"Because at the end of the day we're all fishes in the one big pond: World!" (Actual opening line from Paquarium's whitepaper).
5. Tethering
With the Bitcoin price exceeding $4800 and the cryptomarket cap well over $100bn, it seems the worst thing you can do with your crypto assets right now is spend them. The number of people speculating on the increase in value is staggering. So, to cut through all that and get back to basics, some companies are producing so-called “tethered tokens”, whose values are pegged to dollars or euros.
Getting rid of all the tiresome currency speculation is a tempting goal, and the fact that the tokens are all backed by real money in the company’s account is important… except it’s not exactly “backed”.
From Tether’s purchase agreement: “Tethers are not money and are not monetary instruments. They are also not stored value or currency. There is no contractual right or other right or legal claim against us to redeem or exchange your Tethers for money. We do not guarantee any right of redemption or exchange of Tethers by us for money.”
So… the sellers of Tethers have the money that backs your tokens, but don't count on asking for it.
6. Gold on the blockchain
Gold: the ultimate store of value, your indemnity for when nuclear winter descends. Fiat currencies may be worthless but you can trade your gold for water, tinned food or gasoline.
Well, now it’s on the blockchain. So instead of all that cumbersome metal, you can trade your proof of ownership certificate denoting your ownership of some gold in a vault in Singapore. I’m sure the Mad Max-esque raiders will accept those.
I’m also not sure which apocalypse scenario destroys the servers on which the conventional internet operates, but leaves blockchain networks undamaged.
7. Most ICOs are completely ignoring the SEC
An SEC report in late June made it abundantly clear that the regulator would be applying the Howey Test to crypto-assets in order to determine if they should be deemed securities.
The Howey Test states that any investment contract that involves the exchange of money with the expectation of a return based mainly on the managerial effects of others is a security and, as such, is subject to securities law.
There are, at the time of writing, around 120 initial coin offerings in progress or scheduled to begin within the next month, according to Coinschedule.com. None of these are registered with the SEC as securities or making use of a safe harbour (though one legit issue was done last week). GlobalCapital would hesitate to offer legal advice as to whether they'd all pass the Howey Test, but we'd be very surprised..
While the SEC report elected not to prosecute those responsible for the Decentralised Autonomous Application, it was made very clear that this was a viable option. Others may not be so lucky.
8. Timeshares on the blockchain
Perhaps the epitome of the “but now with blockchain” style of ICO, XAURUM is touting real estate investments in a street of villas in Croatia. Exactly why this should be facilitated by a decentralised application is unclear.
9. Memessenger
“The world’s first messenger with memes instead of words. F$CK WORDS USE MEMES”. Presented without comment.
NB. I have omitted obvious parodies like Dogecoin and Ponzicoin.