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When cryptocurrencies flew up between the end of 2017 and the beginning of 2018, the initial offer of coins, or ICOs, was raking billions of dollars from investors with dollar signs in their eyes. Unfortunately, most of the ICOs ended up losing money to their investors, and some people who were promoting them are now in hot water, including two celebrities.
In this Industry Focus: Financial clip, guest Jason Moser and Fool.com contributor Matt Frankel, CFP, discuss how badly the general market of ICO has achieved and what it could mean for the future.
A complete transcription follows the video.
This video was recorded on December 3, 2018.
Jason Moser: Let's talk a little bit about something, I do not mean the lighter side of the news, because I'm sure there are some people who probably ended up losing a little bit. from something these guys were pushing. Over the weekend we were reading an article about this massive gold rush of cryptocurrency and these ICOs, initial offers of coins, which seem to crop up right and left. It is quite difficult for someone to explain the bitcoin and how it works and why it is important. Now, we have all these other coins coming from these ICOs. And apparently, there are some celebrities who felt like they were there and get a small piece of action.
DJ Khaled and Floyd Mayweather have some problems with the SEC. It seems they may have been able to get a resolution there. These two guys were supporting these ICOs, they were pushing these ICOs, telling consumers, telling people: "Dude, you have to come in while the good guy is doing well, you have to get into this game-changer." The bottom line was, they never revealed the fact that they were actually paid to tell people that. It was not like they were doing it for the goodness of their heart. Here, the SEC finds out, and now they found themselves in a bit of hot water. It seems that the SEC is settling down, the two individuals will pay pretty heavy fines and, I think, return all the money that was paid to make promotions there.
Come back to this cryptic mania, Matt. I understand why it exists. I understand that there is potentially a future there. We held here Aaron Bush a few weeks ago to talk about it a little bit more. But when I see things like that, I become so disenchanted.
Matt Frankel: It is completely understandable. Lately people have lost enough money in legitimate cryptocurrencies. Without counting the ICOs, the total capitalization of the cryptocurrency has decreased by about 700 billion dollars from the peak.
Moser: It's phenomenal!
Frankel: So there were some money lost here. With these ICOs, personally, I hope that DJ Khaled and Floyd Mayweather are not the only two who get into trouble for pumping these ICOs in recent years. Just to give you some context, in 2018, so far, about 12 billion dollars have been collected with these ICOs. One study found that only 8% of them can even achieve a cryptocurrency exchange. The rest either faints, remains stuck in fundraising, or simply disappears and fails altogether. Only 8% get to an exchange. The rest is complete losing money. The study found that 81% were flat-out scams. I even heard a bitcoin expert on CNBC recently talk about how the ICO market is now dead, that it was so bad, that it turned off so many investors, that it's not just a way businesses will be in able to raise capital. It's just been ruined. It's a little crazy, what happened there.
Moser: Really. It was a mania. I was thinking about this, and it strikes me, one of the investment lessons I take away from something like that, it's a good reminder that it's okay just to look at something and admit to yourself that you do not know enough to really be able to offer a & # 39; educated opinion, where to put money behind it. It's okay just to make a pass. Warren Buffett does all the time. Lightweight something and and & # 39; Like, "Nah, I'll throw it in the pile" too hard. " I have heard many people talk about cryptography and bitcoin in particular. I understand what they are telling me. It is difficult for me to still connect the points there in understanding why I personally want to be exposed to this. So I throw it into the "too hard" pile. I just do not want to joke. I do not want to disturb you.
I am struck by the fact that in the case of crypto, with the Ico and the mania that came out, I bet that 98% of the people who were actually accumulating money in this has no idea how it works and why it matters, or why not it matters.
Frankel: It's kind of the biggest silly theory at work here. People see these things going up and up and up and up and up, and they say, "I'm going to buy it and someone else will pay more for it." Kind of the same thing that led to the merger of housing in & # 39; 07 – & # 39; 08. People have seen other people get rich in real estate, so they bought real estate at these inflated and astronomical prices, saying, "Oh, the next one will pay me $ 100,000 more for the same house." The same thing is happening here, and in reality it is not happening very well.
Moser: No, it's not working very well. I never ended up investing any kind of cryptography. You have done?
Frankel: I actually extracted around 30 bitcoins when they were worth about $ 10. I really would like to have them back.
Moser: Did you extract a couple? What did you do to do it?
Frankel: Well, then, it was really easy. In the early days, it could be done with a basic graphics card or a repeating graphic chip. Now, you need these giant drilling rigs. And I did it just to understand how everything worked and what it was, and I ended up getting around 30 coins. I think I bought about 10 of them and got around 20 of them.
Moser: What did you do with the coins you had?
Frankel: I sold them when they were about $ 200.
Moser: At least you did something.
Frankel: I sold it thinking I had made the best move ever. Then I saw them go up to about $ 20,000 a piece. Do the math, $ 20,000 times 30.
Moser: It's better than the story of the guy who used his bitcoin in the day to buy Pope John pizza or something like that You did better than the individual, at least yes.
Frankel: There was another guy who threw a hard disk with the encryption key for about $ 100 million in bitcoins.
Moser: Lord!
Frankel: He actually paid someone a couple of hundred thousand dollars to look for a whole landfill and never found it.
Moser: Successes keep coming. Well, it's a good reminder for investors out there, make sure you know what you're dealing with. And when you hear these celebrities scream from the mountain peaks, maybe give them a second look and make sure they have the faintest idea of what's going on before they start buying based on their word.
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