Why Investing in ICOs in 2019 is a Bad Idea
In this article, we perform an analysis of 15 projects with ongoing ICOs currently being advertised on the Bitcointalk forum, using it as a sample measurement to gauge the overall state of the ICO market in 2019. The results were not good.
Why Investing in ICOs in 2019 is a Bad Idea
In our last article, we took an in-depth look at why the ICO bubble of late 2017 / early 2018 suddenly popped and explained why investing in ICOs now is probably a worse idea than even before. Now, we will take a look at some of the ICOs currently out there in order to help explain why. We have to tell you up front: it isn’t pretty out there, which is why in this current state of things you’d probably be better off selecting a project that is already on the ground running, making a name for itself and working towards realizing its stated goals.
As we explained earlier, ICOs have fallen so out of fashion that new projects seeking fundraising are now using other names to describe themselves, like IEO (Initial Exchange Offering) and STO (Security Token Offering). However, an ICO by any other name is still just an ICO, and their end goal is the same: make money. Just because ICOs have raised considerably less money in 2019 than 2018 or 2017, it doesn’t mean that they aren’t still trying. Occasionally a good new idea will pop up, but this doesn’t necessarily mean it will be a good investment, and for the most part, everything being advertised these days is just a repackaged version of something else already in existent.
Exactly how bad and unoriginal is the ICO market these days? We delved into the Bitcointalk forum’s most trafficked section, Altcoin Announcements, to take a look at what’s currently being floated as investment opportunities. At any given time, there is at least one project being advertised a minute, making it hard to keep up on what is new and even harder to find projects that might have some potential value to them. You can see on the most recent post timestamps in the right column of the below screenshot that new posts are being added to the board at the rate of about one every 55 seconds:
The 33 projects listed on the first page can be broken down into 4 categories, Old projects (those launched before 2019), New projects – post ICO, New projects – ICO ongoing, and New projects – no ICO involved. Their first page tallies by category are shown below:
Old projects: 10
New projects – no ICO involved: 5
New projects – post ICO: 3
New projects – ICO ongoing: 15
- Of the 10 old projects, 4 of them are well-respected, active coins that have established communities and genuine conversation happening around their project. These were Monero (XMR), DigiByte (DGB), NXT (NXT), and Deep Onion (ONION). The other 6 older projects did not necessarily have significant coin market caps but they did have active communities who were generally interested in the status of the project.
- Of the 5 new projects with no ICO, two of them were new coin launches with open source documentation and active miners, one was for a stablecoin backed by diamonds bought only from the project website, and the other two were advertisements for non-coin related cryptocurrency projects.
- Of the 3 post ICO new projects, none of them had yet been listed on an exchange.
It is the 15 new projects with ongoing ICOs that we will be inspecting in detail, since that is what the focus of this article is all about. It’s unsurprising that the majority of new comments on the first page are for new projects, but do they reflect actual interest in the projects? The answer may surprise you. Out of these 15 projects, 10 of them were using a hired “thread bumping service” in order to push their project thread to the top of the Altcoin Announcements page, meaning there was little or no actual, organic conversation happening in the thread.
How can this type of behavior be detected? If you are familiar with the Bitcointalk forum, you will know there is a ranking system determines the longevity and status of each user. A new account starts off as “Brand New,” progressing through the ranks of “Newbie,” “Jr. Member,” “Member,” etc., all the way to “Legendary,” which is the highest rank a user can achieve. Ranks are determined not only by how long a user has been active on the forum but also by how many Merit points they have received. Merit points are awarded to users for posts deemed to be helpful or useful by other users. If a user fails to gain any merits, they will not rank up and forever be stuck at their current rank.
It only takes 1 merit to progress from a Newbie to a Jr. Member, yet thousands of accounts remain trapped at the Newbie stage, never to receive a single merit — and for a good reason: they are not partaking in forum membership in order to learn about cryptocurrency or contribute to the community, but were simply created to “bump” threads pertaining to ICO projects. While a project may create their own bumper throwaway accounts to create the illusion of activity and interest in their ICO, quite often they are hired as a promotional service. An advertisement for such a service can be seen below:
In the ad, you can see that packages range from $100 to $250 for a week’s worth of thread bumping, depending on how many comments you want written in your thread per day, which makes the ICO spamming profession quite lucrative. Unsurprisingly, most of the comments written by these accounts are quite low-quality, uninformative and short. After all, a service with 4 clients might need to write 100 comments a day to fulfill their obligations, and this leaves them with not much time to put a whole lot of thought into each comment.
The main goal, anyway, is to keep the project up on the first page, so that potential investors who happen to be perusing the Altcoin Announcements section will see the project, click on it, perhaps read up on what it’s all about, and maybe even end up investing in it. Here’s an example of conversation generated by a paid bumping service, which can be recognized through a few basic qualities (the same low-level accounts engaging in conversation with each other, producing 1 or 2 line generic responses, never going in depth into any details of the project):
So, why is this a bad sign for an ICO? Couldn’t it just be a form of “attention hacking” or “growth hacking,” necessary for the success of any project in such a competitive environment? The answer is no. Most successful projects are based on unique, groundbreaking ideas and establish organic communities through their own virtues. They do not have to resort to paying professional spammers in order to draw attention to themselves – they attract interest through the virtue of their project.
Creating accounts or hiring a service to create the illusion of interest in an ICO is a sign of disingenuousness and the propensity to resort to dishonest behavior for the sake of marketing. If a project is faking the buzz around its ICO, then what else might they be faking? It is better to skip projects that hire these types of services in favor of those whose threads are filled with real accounts having genuine conversations about the project. So, that’s 10 of the 15 ICOs on our page immediately dismissed as being credible investment opportunities.
Fake / Unverifiable Team Members
Three other projects with an ongoing ICO listed on our Altcoin Announcements page were found to have unverified teams, with no links to social media profiles (such as LinkedIn, Facebook or Twitter) or pictures of themselves. This is another red flag when it comes to investing in an ICO, as there is no reason in this day and age why team members should remain anonymous. It suggests a team is attempting to remain hidden because they do not want to deal with the real-world fallout if their project should go awry. It also makes it much easier for them to simply take funds raised during an ICO and quietly disappear upon closure of the ICO.
Below is an example of such a team where, although names were provided, the project opted to use cartoon renderings of (what are supposedly) themselves instead of provide real photos. They also did not link any social media accounts for verification, which is particularly odd for an ICO.
What’s worse than having an unverified team is having fake team members. These can often be detected through performing a reverse Google Image search of team member photos to see if the photo actually belongs to the team member. Quite often, lazy scammers will use stock photos, pictures of models, celebrities, or even criminal mug shots as team member pictures (yes, that actually happened).
More recently, scammers have been using computer generated images in order to fool those trying to perform reverse Google Image searches. These are pictures of what appear to be real people that are actually AI-generated composites of other people. Some of these pictures look remarkably real and it is near impossible to tell whether or not the image has been faked. However, if you know what to look for in a faked image, they can be pretty easy to spot, as is what happened with a recent Bitcointalk-promoted ICO. There is now a website that will let you upload any image to find out whether or not the person in that image is real or faked in case it is not so obvious. In other instances, as shown below, it is pretty easy to spot anomalies, and if you find an ICO with these types of images for their team members, you should definitely run the other way.
Plagiarized or No White Paper
We’re down to 2 open ICO projects out of our original 15 to start with. Unfortunately, one of them was found to have a plagiarized white paper, and the other one had no white paper at all. Why is a white paper important? It serves as the base documentation any serious project needs that is hoping to attract investor funds. A good white paper provides adequate answers to the who, how, why and where questions about a project. It is the best opportunity for a project to lay its fundamentals down in a clear manner and make its best case for why anyone should invest money in it.
A lack of a white paper demonstrates a lack of seriousness in a project, as well as a lack of commitment to goals. The Satoshi white paper for bitcoin, which has been cited thousands of times in academic and scientific journal articles, as well as by hundreds of other cryptocurrency projects, laid the groundwork for the future of blockchain development while setting the standard for cryptocurrency white papers to come. Without it, there is little chance that bitcoin would have grown to become as popular as it has, as there is no similar point of reference in bitcoin development.
A plagiarized white paper is just as bad as no white paper at all, and indicates a project’s team is either too lazy to describe their own idea or is ripping off another concept entirely. Plagiarism in white papers is far more common than might be expected and speaks volumes about the low level of standards to which ICO developers have fallen. There is no surer sign of a cash grab ICO that has no plans for long-term success than a plagiarized white paper. In addition to simply copy-and-pasting text from a white paper with quotes around it into Google to see if it had been previously used elsewhere, there are plagiarism detection tools readily available on the internet that will check for plagiarism for you.
So, that’s it. Out of the 15 projects with ongoing ICOs we took an in-depth look at, not one of them qualified as a reasonably safe or profitable investment opportunity. Of course, this was only a brief snapshot in time, and a half an hour later, the first page of the Altcoin Announcements section had been replaced with entirely new announcements.
It could very well be that there is a decent project up there right now, perhaps even the next Ethereum, but we have to conclude based on our sample analysis that it is highly unlikely. However, we highly recommend you take a look at one of the several hundred (or thousand) crypto/blockchain projects already on the ground and running before putting money into another ICO at this stage in the ICO game.