Discount or Bonus?

What To Look For When No One Appears To Be Counting

This morning I was approached by a very affable South African who has been working in a consulting capacity for various Initial Coin Offerings (ICOs) since around July.

The chap reminds me of a version of myself 10 years ago; somewhat overeducated, a little too charming, slightly less interested in hearing what you have to say than in getting his own point across. In other words, he is your died-in-the-wool private school and University-educated salesman-turned-early-life entrepreneur.

What makes this individual stand out of the crowd is, upon reflection, perhaps a similar sort of quality that helps me gain an unwarranted share of attention in the crazy world of Cryptocurrency development; we are both from backgrounds which have bred us to believe that, as long as we fight tooth and nail, we are entitled to a crushing victory and vindication of our self-belief.

The ICOs he has been involved with are a little unimaginative but, to be fair, they are also high quality. As a result of these things combined, his is one of the few names whose instant messaging pings I tend to answer within a reasonable time of having received.

“[The ICO team] is looking to acquire ad-network to increase the usage of their platform,” he started. I asked him what role he was playing on this particular flavour of the month. “My role — External advisor — assisted with Whitepaper creation, business strategy, market placement, website, token listing and business networks.”

In other words — every role one could fill on an ICO project is being filled by this veritable consultant from the southern hemisphere. Oh, he continued, interrupting himself (a very Daniel Mark Harrison habit, that one), “I am also Chief Commercial Officer of Hedge Crypto. It is not clear if hedge Crypto provides data (“they have a partnership with Reuters that is generating massive profits”) or trading utility, or for that matter, Blockchain utility. The young salesman assured me most resoundly that “this is a pure utility token” but then boasted of the utility token’s “unique index-linked features with derivatives contract-potential.” I told him that sounded to me like a security with utility build in for good measure. “No, it just pays for services on the data platform one day,” he countered. Yeah, so all that stuff about index-linked value and derivative value potential inside the Blockchain utility paradigm is just to get the girl back home with you then. Sure, I get it. I know exactly what this is about.

But back to the ad network. “If you buy $20,000 worth in the next 48 hours there is a 70% discount,” I was told. Personally, I hate pre-ICO discounts, after getting burned on one to the tune of nearly a quarter of a million dollars earlier in the year. Essentially, you may get the discount but by the time the management team are done dumping the token into the market the price is at or below the discount offer level, meaning above-average risk for at best a break even outcome. Still, 70% seems generous.

“So I just pay $8,000 then do I?” I asked him. Silence. Tap. Tap. Tap. “Let me clarify :Adbank. Bonus does not = discount. It’s a bonus on top of the amount contributed.”

Sorry? So, is this a 40% discount or a 70% bonus? A 70% bonus doth not an equivalent discount make!

“Remember the public ICO bonus is 20% for first 24hrs which regresses accordingly — so you have a 50% buffer … This is a closed round limited to my close circle not offered to the public and is only available through me as the external adviser.”

Right, so it is a 70% bonus of which 71.4% of the bonus is available for only 24 hours now. I did what I regularly do when confronted with such blatantly in-your-face logical short circuits and picked up the phone and dialed him.

“Do you know why a bonus and a discount are not the same thing?” I asked him. Silence. “OK, let me tell you, because I do like you and I hope you go far. When you value a business or an asset — in fact, when you value anything at all in life — you must value it according to what it would be worth now based on its future value after improvement or impairment. For example, if I spend $10 million on my factory and want to sell it, it will have a much greater value in future than it would if I had not done so since it will be in much better condition.

“Therefore, to arrive at what is known as a net present value one has to use something called a discounted future cashflow. To get the discounted future cashflow we use something called the risk free rate — the interest rate. While one is discounting value, the other — the interest rate — works like a bonus function. So to confuse a bonus and a discount would completely screw up the value of anything and everything for sale today.”

“Oh, yeah. You are just like me you know, Daniel,” this hedge fund data provider’s chief commercial officer shot back. “You have a sophisticated understanding of financial modelling. I am from the same world.” And here is the thing: he is absolutely right. We are from the same two worlds entirely. Those are not the worlds where either of us ever had to work in finance, mind you — but we did have just about sufficient enough exposure to it via our back-breakingly conscientious investment banking fathers.

And for this reason he is a Blockchain consultant at 28, and I at the same age, was an Asia reporter living in New York with an occasional guest expert slot on CNN World. Ironically, a consultant and a guest expert are supposed to be some of the most knowledgeable on a subject. Yet back then I was doing what my erstwhile South African protégé was doing; trying to talk the talk as fast as I could in the hope that my brain would eventually catch up.

And somewhere along the line it did. The bonus of confidence and privilege and having been able to travel wherever I wanted whenever I wanted for more than a decade kicked in to an almighty ability to cut sellers down on deals in deep discounts and negotiate hefty bonuses on commissions for doing so from the buyers. And somewhere along the line, I found my future value.

If it is the case that my 2017 current value is the equivalent polar end of my 2008-net present value, it’s really not hard to believe that given enough attention and time, there is a potential future value explosion in everything.

For those gobsmacked by this year’s alarming acceleration in the prices of Crypto, maybe this is a fine example of how things sometimes change in the blink of an eye. For when valued highly enough for long enough it is usually the case that a utility ultimately emerges out of all that value. That is to say, through the tireless act of simply continuing to value and be valued, the discount that once pitted the odds against you somehow miraculously one day represents a hefty bonus.

Discount or Bonus? was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.