ICO. An overused three letter acronym that has taken the place of ‘blockchain’ and is equal in its buzzword status to ‘crypto’. We look at why it is just that – a buzzword with no substance – and how to navigate the empty cryptobabble.
When one ruse is either foiled or with the passing of its time, another ruse often takes its place, usually perpetrated by the same people.
The calmness with which the usually very aggressive binary options fraudsters allowed their back street empire crumble before them was very out of character, given that over the past seven years, the Israeli market makers and brands involved in what the City of London Police has deemed “The largest internet scam they have ever seen” have generated literally billions in ill-gotten gains, often threatening anyone who crosses their path with violence.
The reason for the calmness is clear. Whilst the mainstream media across the globe created a level of public awareness that has now seen the end of the criminal heydey of these bandits, the regulatory authorities in their home territory’s lame attempts to put a stop to them globally were thwarted by the brown envelope.
Simply, the binary options business was sitting tight and waiting, before doing what the orchestrators of most scams do, reinvent itself as something else which appears to be a ‘too good to miss’ opportunity, and in this case appearing innovative so that it catches the attention of the young bloggers and ‘tech’ publications to propagate it as the next big thing.
Airware – sarcastic software industry terminology used in the late 1990s for a non-existent product – could be an appropriate label for the latest buzzword that is proliferating the internet, that being ICO.
An ICO, which stands for Initial Coin Offering, is literally an unregulated means by which funds are raised for a new cryptocurrency venture. An ICO is intended to be used by startups to bypass the rigorous and regulated capital-raising process required by venture capitalists or banks.
In an ICO campaign, a percentage of the cryptocurrency is sold to early backers of the project in exchange for legal tender or other cryptocurrencies, but usually for Bitcoin.
What that means is that people who have been turned down by experienced investors because they have no product and no capital, are attempting to dupe members of the public to give them money, so that they can use it to pretend to make something that doesn’t exist, paid for by something that doesn’t exist, and exchange legal tender which has a value, for a tender that doesn’t exist in order to fund a company that doesn’t exist, whose core business is around a product that doesn’t exist.
Peel away all of the jargon-infused noise all over trendy portals from Redwood Shores to Singapore, and what does this really point to? A ponzi scheme, that’s what.
And in many cases, a ponzi scheme operated by the exact same people behind binary options fraud and other non-entity investment schemes that have bilked people who thought they were participating in an ultra-modern market of tomorrow out of millions.
A quick scour of Ramat Gan, Israel right now would unearth the very same offices within which binary options frauds were perpetrated, now decked out as ‘crypto’ innovation centers, their marketing divisions pushing out press releases peppered with the three letters ICO.
Most of these entities are marketing experts, and even more insidiously, affiliate marketing experts, and affiliate marketing in that sector means stealing leads, recycling calling lists from one entity to another, and pretending to be called ‘John’ from ‘Ireland, UK’… Obviously whilst fraud is something these people are good at, geography is not their strong point.
They have huge PR budgets and are able to sponsor vast conferences in order to create the impression of innovation and to lead the young and impressionable to think that they are going to be an old relic unless they also blow their money on this vapor-ware.
FinanceFeeds has discussed this matter at length with a series of institutional liquidity providers in the non-bank prime of prime sector, as well as prime brokerage divisions of Tier 1 banks in London, all of whom have confirmed our view that it will never become a mainstay of the financial or fintech business.
The pseudonym-orientated nature of ‘cryptocurrency’ and lack of physical presence created a smokescreen that would make a summer’s day in Beijing look as clear as the Caribbean sea, its creator, Satoshi Nakamoto, being a non-entity, having disguised himself for several years before being outed as Australian computer programmer Craig Steven Wright, and its completely peer-to-peer nature in which individuals can ‘mine’ Bitcoins via a system which makes it more and more difficult to obtain the correct nodes on the Blockchain database that are required to form ‘coins’ all allude to a world of mavericks, scientists and anarchists rather than organized financial markets officials.
A series of high profile Bitcoin exchange collapses ensued, a milestone example having been Mark Karpeles’ MtGox, was originally the brainchild in late 2006 of programmer Jed McCaleb, who can also lay claim to having co-developed Donkey2000, Overnet1, Ripple, and Stellar, thought of building a website for users of the Magic: The Gathering Online service to let them trade cards like stocks.
This in itself demonstrates the completely polar opposite from which Bitcoin’s roots hail compared to the established electronic financial world.
In January 2007, Mr. McCaleb purchased the domain name mtgox.com, short for “Magic: The Gathering Online eXchange”. Initially in beta release,sometime during late 2007, the service went live for around 3 months before Mr McCaleb moved on to other projects, having decided it was not worth his time. He reused the domain name in 2009 to advertise his card game The Far Wilds.
Therein lies the very first seed that should have been sewn in the minds of any electronic markets executive that Bitcoin is simply a vehicle for young upstarts to make a loud noise about something that they themselves hail as the next big thing, before either ditching it and moving onto something completely unrelated, or gaining some ground, attracting the attention of Silicon Valley venture capital funds on the premise that it may amount later on to something ‘huge or epic’ (both words that would never be uttered during a board meeting at a serious, established company), before running for the hills at the age of 25 with their exit capital.
The demise of MtGox reached its pinnacle on February 24, 2014, when the venue suspended all trading, and hours later its website went offline, returning a blank page. An alleged leaked internal crisis management document claimed that the company was insolvent, after losing 744,408 bitcoins in a theft which went undetected for years.
Six other major bitcoin exchanges released a joint statement distancing themselves from Mt. Gox, shortly before Mt. Gox’s website went offline.
When has this ever happened at CME or ICE’s electronic listed derivaticves or online currency futures contracts venues? That’s right. Never.
In a January 6, 2015, Kraken CEO Jesse Powell discussed being appointed by the bankruptcy trustee to assist processing claims, and those who still believed in an unsecured, unbacked, peer to peer currency began to herald Kraken as a stable face among complete villainy.
This all occurred just after the seizure of Silk Road by the US government for using the dark web and virtual currency to facilitate money laundering and illicit trade, and quite simply the image in the mainstream, grey suit world of institutional financial technology could not have been worse.
Suddenly, the attention of the corporate giants turned to Blockchain, the intrinsic database technology that is inseparable from Bitcoin, became of interest to large institutions. This is when the upstarts began making a loud noise again. Bottom of the range technology forums went from being peppered with the word Bitcoin to being peppered with the word Blockchain. Absolute noise, the whole lot of it.
Now that the institutions such as Goldman Sachs, and the professionals services consultancies such as PriceWaterhouseCoopers are invested to the tune of millions in the R&D of blockchain database technology for the purposes of distributed ledger refinement, it is becoming clear that at some point, a way of separating the blockchain database from Bitcoin will be discovered, hence there will be no more interns piping up on tech sites about blockchain in order to appear more experienced than they really are.
Hence, ICO is the replacement buzzword for blockchain.
In terms of its fragility and irrelevance in the mainstream electronic brokerage sector is concerned, dissent is the key denominator among those in established positions with firms that have actual real balance sheets and have powered the electronic trading business forward, as opposed to those selling, well, nothing.
“Looking at how many liquidity providers could be exposed is interesting due to people buying and holding bitcoin, as the leverage is small could be a major sticking point” said one particular trader within London’s interbank sector when discussing this with FinanceFeeds.
“Currently our view is that any entry into ICO or Bitcoin trading would exposing lots of brokerages as they can hold that position for a long time, especially when you have a 5:1 leverage ratio. I think that it could be a big problem for retail brokerages” he said.
“Also, aside from the completely unbacked and unpredictable ‘fraternity’ nature of cryptocurrencies, people are not buying and selling like they do for standard majors, for example EURUSD where buy and sell is fast. Bitcoin has wide spreads and a different mentality has been demonstrated by its users when ,traded, so even the ‘LPs’ that are offering BTC are exposed” he said.
“Maybe they could ride it out easily with their balance sheet if they are a well capitalized liquidity provider, but the prime brokerage divisions of banks would see this as a very risky thing to do and may start restricting their existing liquidity arrangements with relation to fiat currencies, and then smaller liquidity providers that basically sell their own feeds to other brokers may well not survive, and as a result, many retail FX brokers would be exposed either by client activity, or by the ‘liquidity provider’ going insolvent”
The reason for the sudden noise is simple. Established firms do not need to bang a loud drum, whereas those intending to gain a quick buck on the back of naivity or create an air of ‘this is the future’ then run away when it goes the way of binary options, have massive marketing budgets.
This whole trend, which is really what it is, can be written off as yet another loud PR noise for the Bitcoin proponents, by entities with no commercial value that are attempting to bulk themselves up synthetically so that it, like all of its peers and their founders, can exit and never be seen again.
The information that has been provided is obscure and vague, and is full of superlatives, yet no figures. One has to wonder how long it will be before national governments block the IP addresses of anything relating to ICOs, or if the FBI will do what they did to Lee Elbaz with some of the ICO propagators, many of whom already have a record with the FBI for their previous efforts.
Will any ICOs really become the seed for established businesses?
The tumbleweed rolls across the empty desert…..