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Home Business News

ICOs may be causing a cryptocurrency bubble

Onome Ohwovoriole by Onome Ohwovoriole
July 20, 2017
in Business News, Cryptos, Markets
A Mysterious Bitcoin Whale Causes Brief Panic Sell Offs at Bitcoin’s Market, The odds against Bitcoin, Goldman Sachs says Bitcoin is not an investment asset, BTC whales control the BTC market, at the highest levels , , There are now 13,173 BTC millionaires around the world

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As the price of bitcoin recovers lost ground, experts have warned that the cryptocurrency market could be heading for a bubble due to the number of Initial Coin Offerings (ICO) that have been held recently.

About $1.2 billion has been raised through ICOs so far, six times more than the sum raised last year. Most of the coins being launched duplicate the function of existing currencies and have led to a dumping of large volumes of ethereum which is the coin of choice for subscribing to the IPOs.

Ethereum is the 2nd most traded cryptocurrency after bitcoin.

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What is an ICO

ICO stands for Initial Coin Offering. It is a means whereby companies raise capital either for a new coin or a project. To participate, individuals pay a certain amount of money either as bitcoin or ethereum. Participating in an ICO, does not grant ownership of the company behind the project. ICOs have witnessed a huge surge recent due to the demand but investors seeking a high rate of return. New coins often trade very highly in their first few weeks of opening, some as high as 1000% in a few days . Companies and businesses have also raised money en masse through ICOs because they do not come under the scrutiny of regulators in the finance industry.

How ICOs are causing a bubble

Investors lured by huge returns flock into the ICOs. Companies seeing the rush into previous ICOs come up with even more of them. The multitude of ICOs then even outs the returns. Disappointed investors sell down the coins once they start trading. Companies that raised money often pay back money to investors using ethereum, leading to a further crash in prices.

What should people do

Exercise caution before investing in an ICO. Does the company have a valid product offering or does it copy an existing product. Are the management experienced in the cryptocurrency or technology sectors or are they newbies. Take time to read the offer document or white paper before investing. Read reviews from reputable cryptocurrency websites.

Tags: CryptocurrencyICOInitial Coin OfferingNews Review
Onome Ohwovoriole

Onome Ohwovoriole

Onome Ohwovoriole has a degree in Economics and Statistics from the University of Benin and prior to joining Nairametrics in December 2016 as Lead Analyst had stints in Publishing, Automobile Services, Entertainment and Leadership Training. He covers companies in the Nigerian corporate space, especially those listed on the Nigerian Stock Exchange (NSE). He also has a keen interest in new frontiers like Cryptocurrencies and Fintech. In his spare time, he loves to read books on finance, fiction as well as keep up with happenings in the world of international diplomacy. You can contact him via onome.ohwovoriole@nairametrics.com

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