Valuing ICOs 101, be vigilant

Each New ICO

Should be valued as follows TOTAL COINS ISSUED x $ or BTC Value = Market Cap

(*this formula is more widely known for public companies that keep the cash raised from their securities sales in their accounts, and report negative burn rate, these ICO funds are presumably more flexible and can end up anywhere, with no oversight and not many reports on negative burn before profitability)

Lets start with ICO Example 1
If a new ICO coin has 150 Billion coins and the current market price is .0034 btc's

The coin is valued as follows:

.0034 Btc's today equals appx $1.00. Valuing this ICO coin at $1 x 150 billion coins or $150,000,000,000 USD which is rougly the value of Mastercard and more valuable than McDonalds, Boeing, Comcast and 100s of other massively important companies.

For a start up with no proven concept, and management that is new to running billion dollar company, this is likely an unsustainable valuation, and all coinholders will lose large % of thier invested BTC's or ETH's. This same logic applies to companies that ICO with 8 - 20 programmers valued at 100+ Milllion dollars. Running massively large companies is a skill set that few people possess. There is a massive difference to running a company with two dozen employees and 200 or 2000 employees. Besides the anomaly few people who may have risen up and can achieve managing and scaling a 9 figure plus company, the majority of people in this realm, currently, do not have the skill set to do that. However, this misses the most important part of this ICO, where did the ICO money go.

And why do you need to care, even if you are not involved in that particular ICO, which brings us to ICO example 2

ICO example 2

If XYZ ICO pops up on a screen and proposes to solve all financial problems across the globe (substitute any scam ICO here). Some new BTC players may think scam coin XYZ looks interesting and want to invest or want to profit on the ICO bump and buy the ICO. Lets say this hypothetical ICO issues 100 million coins and the coins ICO at .00034 btc ($1.00 Day 1) and pop up to $2.00 that same day. The founders were sent 39,500 BTC's and now hold 100 million dollars. Day 1 the founders of scam coin pocketed and control $100,000,000 dollars. The coins were given to the founders, there is not some world renowned accounting firm verifying that this company is putting that entire 39,500 coins (100million USD) into a business account and solely using these coins for business expenses. You just gave some group of individuals access to 100 milllion dollars. Even if this wasnt for scam coin XYZ, unfettered access to $100million USD is a massive problem.

the Market Valuation for a typical public company is $100,000,000 on day 1 because they have 100m in cash. However for an ICO on day 1, the effective market value is zero plus whatever the founders put into an account to run the business.

Despite the cash and BTC control issues, several actions are now going to take place with the ICO coins and founders BTC's.

1. Trading. Some of the ICO members will sell at $2.00 making a profit, which means some other sucker just bought that coin at $2.00. This is economic Darwinism and the least damaging effect of this ICO.

2. Saving. Other ICO purchasers will hold without trading believing that their coins will go up. And eventually lose all their money.

3. However, the most damaging part of this new phenomenon has to do with the founders of XYZ scam ICO, the founders were sent roughly 39,500 Bitcoins. WIth no business, except a 30 page "white paper", a dream, some sort of business plan and 10 employees. Those bitcoins are worth $100,000,000 USD, and the founders are now going to convert a majority of those 39,500 bitcoins into USD or CYN and spend them on houses, cars, dinners and other personal items.

This

A. pulls money out of the bitcoin ecoysystem and deflates the pricing of every coin, as cash is sucked out of the bitcoin system, the equalizing piece would be a new $100,000,000 conversion of fiat to bitcoin currency. For this one scam ICO 100m that might happen quickly, but for individuals who created the marketplace for this system you might need millions of new virtual currency investors and stakeholders to even this loss of investment into the Virtual economy out.

What is worse was take 100 ICO's over a 30 day period and you have tens of billions of dollars leaving the system, the effects of this are difficult to calculate, as money leaves the virtual currency system, all virtual currency is negatively effected, the extent of it we do not yet understand.

B. Damages the credibility of system

C. Will eventually deter people from participating

Ultimately scam ICO takes BTC's that were in the virtual currency system, that enlightened people spent massive amount of time researching and then converting have now been given to a scam ICO founder, who then turns them fiat currency pulling them out of this system, and thus harming everyone in the very system all virtual currency holders are working to build up.

Ultimately scam ICO's deflates the value of all coins, exiting BTC's from the system, as investment into the virtual currency system is looted, the values of all coins are diminshed, and damages to the perception of the system take place as well as increased scrutiny by regulatory agencies.

ICO's while potentially good for the system, come with a responsibility to make certain you are not participating in a scam as well as making certain those who publicly benefit by taking in hundreds or tens of millions in coins, use those coins for business and not personal purposes. While their may be a majority of good actors, bad actors will rise up, some system needs to be in place to thwart that.

Please be vigilant

King