Confessions of a Crypto Junkie #1 : Liquidity, Marketing and Value

Confessions of a Crypto Junkie #1 : Liquidity, Marketing and Value

During the last 2 years, we have seen more than 2000 projects launching their own ICOs/TGEs/ITOs.
Even if these projects are from various countries, sectors and industries there are quite few problems that they have in common which I’ll describe in this article.

Liquidity and commoditization of token

If there is no liquidity, your potential customers (so the ICO investors) will vanish as soon as they can exit from their positions and your first impression will be: it’s a shitty coin, period.

The liquidity problem has always there but it has become more relevant in recent times with the large number of ICO launched and, subsequently, with the prices of market making companies reaching new peaks in 2018.

The inflow of investors that could access your tokens is still strongly influenced by the exchange on which the token is listed. However, due to the high fees of listing tokens on large exchanges, the alternative option is to list on lower volume exchanges and compensate it with market maker services. At least, to avoid reputation damages of not having enough liquidity.

None of the ICO projects are saying publicly but, unfortunately, there is a strong belief and assumption that ICO projects will make more money through token sale rather than through the future business operating of selling products or services.
By having this approach, every token is a competitor which results in having the commoditization of the offering of all these 2000 projects; all of them fighting for the same thing, hype. Hype is very powerful and can go across industry and countries.
Doesn’t matter if your core business is related to IOT, supply chain or financial services; you’ll all compete for the same things: hype, liquidity and, hopefully, low velocity among the users.

The “token show”

I have attended several conferences about blockchain and ICO in the last year, what is incredible is the new market that was created around it.
ICOs are basically a global crowdsale and many companies needs to be present in multiple conferences in various countries and continents around the world at the same time. How do they achieve that? The solution seems quite simple: companies now hires public speakers to attend conferences and perform pitches on their behalf. If you dare to ask a question outside of the plot or not shown within the slides, the chances that the poor (yet, well paid) consultant could answer are very low and most of the times you will finish by just getting a business card to address further questions.

This is the concept of perceived proximity applied to ICOs and it’s part of our human nature. As human, we naturally feel more reassured to see some “real” person on a stage playing along a plot rather than just having a real project published on Github, for example.

(Marketing) Strategy in blockchain businesses

Since still nowadays most of the ICOs don’t have a product, unfortunately, the only strategy that is taken into account is the marketing strategy.

The marketing costs, are somehow among the highest costs that are faced by ICO companies and, as it often happen in these cases, there are a lot of inefficiencies in how the capital raised is used.

One of the problems is related to the fact that the vast majority of customers which are targeted by ICOs (assuming the case of no running product) are different from the customers that will eventually use the company’s products or services. That’s why, for now, it makes sense to externalize the marketing ICO services to external agencies as there is probably little value in retain in-house the know-how on how the customer responded to each ICO marketing attempt.

This, however, leads to the fact that once the real product will be launched, there will be the necessity to allocate additional budget for a completely new marketing campaign coupled with maybe a new brand identity and surely a new communication strategy addressing the usage of the product and not the investment opportunity.

What is often underestimated is that a very small minority of the investors or token holders will also be future customers of the company. Keep in mind that, successful startups adopting the freemium model have a free to premium conversion rate that goes from 1 to 10%. I assume you can imagine a similar conversion ratio from ICO investor to customer.

What to expect in Q4 2018 and Q1 2019

We are seeing financial institutions moving in the direction of cryptocurrencies. Banks are becoming more and more “friendly” to the crypto ecosystem and finally banking with crypto assets is not an impossible mission.

However, what is predictable, is that more and more financial institutions will be entering into the crypto market in different ways. What I’m afraid is that, probably, their only value proposition would be around leveraging their “I’m regulated” status… (facepalm)
Some banks will take the opportunity to play the role that investment banks are offering to companies that wants to do an IPO; others will launch centralized exchanges and try to make money in the old way (doublefacepalm)
What is surprising is that people have very short memory, I think Danske Bank was and still is a regulated bank, right?!?

For what matters the liquidity side, despite a very high growth of crypto hedge funds in 2017 and early 2018, we are now facing a situation where that market is stagnating as it is dominated by large and “obscure forces”…
Once you’ll be in crypto long enough to understand how it works, I’m sure you’ll understand why decentralized exchanges are the only way to have a flourishing future in that business. Unfortunately, market making on decentralized exchanges has not reached yet a satisfying level of maturity to guarantee the required liquidity.

Just a year ago, unless you had the right contacts, it was very difficult to get in touch with crypto exchanges to get a token listed. Too many requests… which have driven the listing price to obscene levels. More recently, we’ve started to see a new trend where crypto exchanges are now contacting ICO advisors, ICO boutiques, marketing agencies, etc… to offer commissions in case some projects are referenced to them. Quite a change, isn’t it?!?

Confessions of a Crypto Junkie #1 : Liquidity, Marketing and Value was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.