Investing in the Worlds New Digital Assets: A Guide to Valuing Bitcoin & ICO’s

Contents

Section 1- Blockchain & cryptocurrency

Section 2 – Bitcoin Valuation

Section 3 – ICO 101

Section 2 – ICO Agency Problem

Section 3 – Concepts of investing

Section 4 – ICO Screening & Pitfalls

Section 5 – Qualitative ICO Analysis

Section 6 – Quantitative ICO Analysis

Section 7 Hunting for Expected Value

Section 8 – Selling Tokens

Section 9 – Total & After-tax Return

The crypto currency & Crypto asset is described by some as the 4th
industrial revolution. I would analogize this digital wave to the
internet revolution of the 90’s. Non-investment types talking about the
latest tech IPO, irrational exuberance everywhere – Yes the animal
spirits were out. Of course, the internet with all its connectivity and
utility has changed the world to an extent. With that said, with every
Amazon, there were plenty of garage companies in the valley with
little assets and no cash flow – and to be frank highly over optimistic
predictions of its market or market share. Similarly, I believe there will
be crypto companies (platforms and applications) that revolutionize
certain industries – but the vast majority will fail.

Bitcoin was the first crypto currency created in 2009 and is currently
worth $11,870. A framework, or valuation can be created to better
understand its value. Unlike many financial assets, personal
perception has a wide range for the utility of bitcoin.

Investing in ICO’s may appear to be a misnomer if applying Ben

Grahams definition, since ICO’s have very little tangible assets and a
lot of hope and dreams – the kind of thing most value investors would
not touch with a ten foot pole. Indeed the approach in this book would
be categorized as speculation, but it is value-oriented speculation.

The value oriented expected value approach is one of research,

subjective probability, qualitative analysis, and quantitative modeling.
The uncertainty level is high, but prudent calculation can still provide
a positive expected value investment.
Section 1 – Blockchain & Cryptocurrencies
a. Blockchain
The value of Cryptocurrency and ICO’s are created from the underlying blockchain. Harvard Business
Review defines it as "an open, distributed ledger that can record transactions between two parties
efficiently and in a verifiable and permanent way. Blockchain is decentralized making it applicable
towards transaction processing record management.

Blockchain technology has a large potential to transform business operating models in the long term.
Blockchain distributed ledger technology is more a foundational technology—with the potential to
create new foundations for global economic and social systems—than a disruptive technology, which
typically "attack a traditional business model with a lower-cost solution

b.Cryptocurrency
Within cryptocurrency systems the safety, integrity and balance of ledgers is maintained by a
community of mutually distrustful parties referred to as miners: members of the general public using
their computers to help validate and timestamp transactions adding them to the ledger in accordance
with a particular timestamping scheme.
A currency that uses cryptographyis a digital asset designed to work as a medium of exchange using
cryptography to secure the transactions, to control the creation of additional units, and to verify the
transfer of assets.[1][2][3] Cryptocurrencies are classified as a subset of digital currencies and are also
classified as a subset of alternative currencies and virtual currencies.
Most cryptocurrencies are designed to gradually decrease production of currency, placing an ultimate
cap on the total amount of currency that will ever be in circulation, mimicking precious metals.

The qualities money exhibits are an medium of exchange, store of value,

It can take time to grasp to understand fully. But ask why Gold has value? Does it have much use or
utility?Gold does not have a fundamental intrinsic value, and does not provide any cash flow, a right to
future earnings or a promise of repayment at a later date
c. bitcoin history

Bitcoin was the first crypto currency, and has fascinated many as its price has climbed from pennies to
$11,875 as of December 2017. Created by an unknown person using a psuedonym “Satoshi Nakamoto”
in January 2009, bitcoin was released with Satoshi Nakamoto mining the first block of bitcoins.

The Satoshi whitepaper “Bitcoin: A peer-to -peer electronic cash system” was posted to a cryptography
mailing list in October 2008. It described electronic transactions without relying on trust by using
proof-of-work to record a public history of transactions. The primary model of banks serving as trusted
third parties to process electronic payments creates friction and costs that do not exist between the
propsed electronic payment system based on cryptographic proof instead of trust, allowing any two
willing parties to transact directly.

The intricacies of bitcoins protocol are out of the scope of this text– but before investing i recommend
reading literature and research aggregated on “nakamotoinstitute.org”. Nick Szezbo writings provide
philosophical and conceptual understanding on matters such as value, money, and bitcoin predecessor
“bitgold” .

d. ether

Blockchain-based smart contracts are contracts that can be partially or fully executed or enforced
without human interaction. There is great expectation for the ethereum based smart contract, as many
banks and other corporations are using it to create contracts and applications. The greatest positive use
impact on Ethereum has been the growth of “tokenized assets” driven by the ICO market. The
Ethereum developers created the ERC20 ‘Token Standard’ for other token programmers. This
templated-contract provides issuance, distribution and control of the assets in a formalized,
standardized manner. The derivative-token owners use that asset to interact with and utilize the
platform itself. While a token represents a store of value, such value is hard to determine as its
discounted aggregate utility to marginal cost is unpredictable for many tokens. Most will eventually
prove to have little-to-zero value, although certain talented developers with vision have potential to
reinvent entire industries.

The other major crypto currency with significant expectations is ether, coin used for the ethereum
network. Ether needs to be used by ethereum app developers and users of ethereum blockchain smart
contracts. The ethereum DOA"Distributed Autonomous Organization",which other projects in the
ecosystem could be funded by community consensus was hacked June 2017 in the smart contract
underlying the project.. Ethereum will be switched from Proof of Work to a new consensus algorithm
called Casper.

Blockchain-based smart contracts are contracts that can be partially or fully executed or enforced
without human interaction. There is great expectation of the ethereum based smart contract, as many
banks and other corporations are using it to create contracts and applications. Ethereum Solidity will
execute a contract when specified conditions are met, enabled by detailed programming instructions
that define and execute an agreement.

The greatest positive use impact on Ethereum, has been the growth of “tokenized assets” being created
on the Ethereum public chain to create incentivized platforms; wherein the owners of the token use that
asset to interact with and utilize the platform itself. One of the main capabilities of Ethereum is that it
allows a user to create its own token. A token is a representation of value. The Ethereum developers
created the ERC20 ‘Token Standard’ for other token programmers. This templated-contract provides
issuance, distribution and control of the assets in a formalized, standardized manner.
A token standard allows for the ease of interoperability between DApps (decentralized applications
built on the Ethereum public chain) and the tokens built by the programmers.The tokens themselves do
not offer the holder any particular rights or actual equity in these projects; however, it does enable the
ability for individuals to speculate on the adoption and eventual real-world usage of those systems,
creating liquidity and the ability for developers to fund their project and bring it to fruition. It also
allows those users/investors to access any platforms or features that the developers create in the future
with the token

Section 2 - Bitcoin Valuation Model

ICO 101

a. Crowdfunding meets IPO

An Initial coin offering essentially combines the two financing methods of crowd funding and initial
public offering IPO. A major difference is that equity value is backed by the “coins” or “tokens” issued
instead of the dollar.
the backer receives shares of a company, usually in its early stages, in exchange for the money
pledged.involves the offer of securities which include the potential for a return on investment.
2012 JOBS Act will allow for a wider pool of small investors with fewer restrictions following the
implementation of the act.

Accredited investor current law

Is it not a claim to residual earnings? So do you only make money if the application is demanded, and
you need coin to use it, so demand increases price of coin?The big difference between an ICO and an
IPO is what the user receives. In an IPO, the user receives a share of ownership in the company. They
usually have rights to the profit in the form of dividends, rights to company direction in the form of
shareholder voting, etc. In an ICO, the user receives a token that allows use of the token’s features. For
example, buying ether lets you execute smart contracts on Ethereum. Buying Factoids allows you to
record a hash on Factom’s chain, etc. Think of an ICO as a pre-sale like that of Kickstarter.

In a sense IPOs and ICOs are similar in that demand for the product will drive up price, but in another
sense they’re very different. A right to use a product is far different than an ownership of the company
producing the product. It’s true that both are essentially bets on the future utility of the product, but
they have very different risk profiles.The money raised from the token sale has essentially no
conditions. As you are buying a right to use a product in the future, you have no say in the way the
money is used. If this sounds scary, it should. The people who take the money raised through a token
sale can essentially do with it what they please, though to be fair, most set up some sort of foundation
or contract to direct their activities.

b. relevant info. How many there been

c. Irrational Optomism
Many companies issuing ICOs due not have a full business
plan or even concept.
c. Sources of material information

d. how to buy
Buy at ICO from markets etc. Tokenmarket.net you can buy or sell tokens post-ICO.

Types of token sales

uncapped - Nearly every uncapped sale is criticized for being “greedy” (a criticism I have
significant reservations about, but we’ll get back to this later), though there is also another more
interesting criticism of these sales: they give participants high uncertainty about the valuation that they
are buying at. To use a not-yet-started sale as a example, there are likely many people who would be
willing to pay $10,000 for a pile of Bancor tokens if they knew for a fact that this pile represented 1%
of all Bancor tokens in existence, but many of them would become quite apprehensive if they were
buying a pile of, say, 5000 Bancor tokens, and they had no idea whether the total supply would be
50000, 500000 or 500 million.

Capped - hroughout 2016 and early 2017, the capped sale design was most popular. Capped sales have
the property that it is very likely that interest is oversubscribed, and so there is a large incentive to
getting in first. Initially, sales took a few hours to finish. However, soon the speed began to accelerate.
First Blood made a lot of news by finishing their $5.5m sale in two minutes - while active denial-of-
service attacks on the Ethereum blockchain were taking place.

Reverse dutch -The Gnosis sale attempted to alleviate these issues with a novel mechanism: the
reverse dutch auction. The terms, in simplified form, are as follows. There was a capped sale, with a
cap of $12.5 million USD. However, the portion of tokens that would actually be given to purchasers
depended on how long the sale took to finish. If it finished on the first day, then only ~5% of tokens
would be distributed among purchasers, and the rest held by the Gnosis team; if it finished on the
second day, it would be ~10%, and so forth.
The purpose of this is to create a scheme where, if you buy at time T, then you are guaranteed to buy in
at a valuation which is at most 1 / T.
The goal is to create a mechanism where the optimal strategy is simple. First, you personally decide
what is the highest valuation you would be willing to buy at (call it V). Then, when the sale starts, you
don’t buy in immediately; rather, you wait until the valuation drops to below that level, and then send
your transaction.
There are two possible outcomes:
1. The sale closes before the valuation drops to below V. Then, you are happy because you stayed
out of what you thought is a bad deal.
2. The sale closes after the valuation drops to below V. Then, you sent your transaction, and you
are happy because you got into what you thought is a good deal.
What happened? A couple of weeks before the sale started, facing public criticism that if they end up
holding the majority of the coins they would act like a central bank with the ability to heavily
manipulate GNO prices, the Gnosis team agreed to hold 90% of the coins that were not sold for a year.
From a trader’s point of view, coins that are locked up for a long time are coins that cannot affect the
market, and so in a short term analysis, might as well not exist. This is what initially propped up Steem
to such a high valuation last year in July, as well as Zcash in the very early moments when the price of
each coin was over $1,000.
Now, one year is not that long a time, and locking up coins for a year is nowhere close to the same
thing as locking them up forever. However, the reasoning goes further. Even after the one year holding
period expires, you can argue that it is in the Gnosis team’s interest to only release the locked coins if
they believe that doing so will make the price go up, and so if you trust the Gnosis team’s judgement
this means that they are going to do something which is at least as good for the GNO price as simply
locking up the coins forever. Hence, in reality, the GNO sale was really much more like a capped sale
with a cap of $12.5 million and a valuation of $37.5 million. And the traders who participated in the
sale reacted exactly as they should have, leaving scores of internet commentators wondering what just
happened.
More importantly though, bubble behavior aside, there is another legitimate criticism of the Gnosis
sale: despite their 1-year no-selling promise, eventually they will have access to the entirety of their
coins, and they will to a limited extent be able to act like a central bank with the ability to heavily
manipulate GNO prices, and traders will have to deal with all of the monetary policy uncertainty that
that entails.

Section 2 – ICO Agency Problem

a.explain agency problem

An alignment of interests and checks and balances between the stakeholders is created in most
cooanies. The prevailing ICO model provides great potential for mismanagement since there is a
conflict of interest and ICO investors have little recourse in case of expensive spending or fraud.
b.Corporate governance & coinholder rights
Typically stockholders have rights outlined by the bylaws, under the particular domicile such as
Deleware corporate law. There interests are supposed to be managed by the board of directors. proxy
statements are sent to shareholders yearly providing the opportunity to vote on certain matters. If
stockholders believe executives are excesively compensated, then they can vote against the
compensation committee.

dotcomcompanies were particularly bad at keeping costs down and operated at a loss to get network
effect. These companies also spent a lot on non-needed things – and it had a board of directors and
shareholders to answer to.

There are often conflict of interests between executives, non-exec workers, stockholders, bondholders.
It is optimal when the vested interests of parties align, like executive compensation being linked to
long-term share value.
d. Lacking SEC oversight

The securities and exchange commission “SEC” is the primary regulator for protecting investors and
maintaining fair efficient markets. Any public company, that is a company that sells stock to the
public, is required to release certain information. For example, each company provides statements on
material information and on its quarterly results. The financial reporting has to meet certain criteria
pertaining to GAAP, to make inaccurate reporting more difficult. ICO’s are considered transparent by
posting on Reddit and uploading their code online.

According to the SEC “Under the federal securities laws, a company that offers or sells its securities
must register the securities with the SEC or find an exemption from the registration requirements.
Exemptions are under SEC Securities Act Regulation D Rule 506(b), which states a company can be
exempt by:
• The company cannot use general solicitation or advertising to market the securities.
• The company may sell its securities to an unlimited number of "accredited investors" and up to
35 other purchasers. All non-accredited investors, either alone or with a purchaser
representative, must be sophisticated—that is, they must have sufficient knowledge and
experience in financial and business matters to make them capable of evaluating the merits and
risks of the prospective investment.
• Companies must decide what information to give to accredited investors, so long as it does not
violate the antifraud prohibitions of false or misleading statements. Companies must give non-
accredited investors disclosure documents that are generally the same as those used in
Regulation A or registered offerings, including financial statements, which in some cases may
need to be certified or audited by an accountant.
• The company must be available to answer questions by prospective purchasers.

I have yet to see disclosure anywhere near that required of registered securities. It appear the SEC does
not have the teeth, especially if domiciled in other jurisdictions. Prudent investors will stay away from
ICO’s altogether until regulation and corporate governance improvements since there is such
opportunity and incentive for management to pocket the funds raised.

e. Smart contracts & Investor protection mechanisms

Investor protection does not yet have a reliable common model. Some ICOs including Bancor
implement “token vesting”, which limits ICO founders to trade post-ICO and releases tokens
incrementally. While this prevents management from dumping tokens post ICO, it does not prevent
mismanaging funds collected.
Lock-up mechanisms (think vesting schedules and cliffs) with token
contracts are becoming a more common norm; but, to think that’s
enough to give you peace of mind in this (somedays seemingly)
lawless jungle of cut throats, would be naive.
It is ironic that the underlying business concept often involves smart contracts, but companies do not
enable them for investor protection and confidence. There is a potential revolution of corporate
governance and shareholder rights from this technology.

Due to the current lack of rights, protection, and regulation, smart contracts containing covenants and
escrow should be put in place. These two protection mechanisms typically protect lenders because
there is a conflict of interest as management is compensated in equity and has fiduciary duty to
maximize shareholder returns. Given the current conflict of interests between ICO investors and
management, these mechanisms should be used to protect coinholders. For example, funds received
would be in escrow and released intermittently in pursuant to coin-holder admittance or voting.

Tezos ico

Vitalik Buterin provided these solutions -

A related proposal is Vlad Zamfir’s “safe token sale mechanism”. The concept is a very broad one that
could be parametrized in many ways, but one way to parametrize it is to sell coins at a price ceiling and
then have a price floor slightly below that ceiling, and then allow the two to diverge over time, freeing
up capital for development over time if the price maintains itself.
Arguably, none of the above three are sufficient; we want sales that are spread out over an even longer
period of time, giving us much more time to see which development teams are the most worthwhile
before giving them the bulk of their capital. But nevertheless, this seems like the most productive
direction to explore in.
Note that there are other mechanisms that should be tried to solve other problems with token sales; for
example, revenues going into a multisig of curators, which only hand out funds if milestones are being
met, is one very interesting idea that should be done more. However, the design space is highly
multidimensional, and there are a lot more things that could be tried.
Section 3 - Concepts of Investing
a. equity valuation
An ICO is more similar to an equity stake by form, but instead of a legal claim to the companies
residual earnings, a token provides future utility claim to its blockchain. Both of these securies value is
a function of product utility over marginal cost.
Value can be an elusive concept in the case of crypto assets since it is new and future expectations
range greatly. There are many techniques, but the value of an asset is its discounted future cash flows.
Fortunately, assets like public common stock can anchor its value to its assets or earnings. A business
with a $500 book value that earns $100 consistently for the past decade is unlikely to be worth
$400,000. You want to research and model for how much a business is going to make over its lifetime.
A stock, or equity stake, is a claim to a companies residual earnings.

Once you have a good understanding of a stocks value, then you can determine if it is under/over/failrly
valued at the current moment. The allegory of the stock market used by Ben Graham was a bi-polar
investor, driven constantly by his emotions, most of which greed and fear. The common rule of thumb
is to buy when the market is fearful and sell when it is greedy or euphoric.

You can save much time and energy by simple indexing. The S&P 500 index has a CAGR(average) of
9% from 1871 to 2016.Trying to beat the market is likely futile unless you have the right capabilities
and passion for the game. A few ways to beat the market is by following fundamentals and having a
better understanding than the counter-party. Possessing greater understanding is difficult in many
stocks whose valuation is straightforward. Companies experiencing special situations, such as a spinoff
or a negative PR event are most likely to have mis valuations.

To provide an example, Penn National Gaming stock was undervalued recently after it spun-off its real
estate into a REIT. The conclusion of my analysis was “ Penn National Gaming is undervalued
because of the unique spin-off of its real estate, large chance of a takeover, and recent goodwill
writedowns. Future quarterly and annual financial statements will likely illuminate the hidden value of
the spinoff. If a takeover occurs, the premium may resemble Fortresses 31% offered in the prior
attempt. There appears to be substantial upside and a limited downside at the current market price.”
The spinoff craeted value by descreasing tax liability since REITs pay no federal tax. The stock also
experienced forced selling by mutual funds mandate rebalancing. So not only did you get to buy a solid
stock at a depressed price, but it traded much cheaper compared to competitors.

The most similar scenario to an ICO would be tech stocks early life. Some will have great expectations
then crash while others will appreciate 100 fold over time. Most of these situations are undervalued if
their business concept is proven correct and they execute effectively. During the dotcom stock
bnonanzo, many overoptomist insisted that a new economy had emerged. While marketing became
more effective, sales to online customers world-wide became realizable, and costs decreased from not
needing physical stores – the essence of trade and valuing a companies equity remained intact.

b. estimating future earnings

Projecting future earnings depends on many factors including industry, sustainable competitive
advantages, and creative destruction to name a few. People like Warren Buffet mitigate future
uncertainty by having a significant sample size and circle of competence. For example, when he bought
Coca Cola stock in 1988 he had 69 years of public data and understood that while its market price was
depressed from 1987 crash, consumer preference for its soft drinks likely changed.

It is advantageous to anchor your projections by a historical sample or basis of comparison.

conservative

c. discount rate
Discounting is a way to adjust value due to time and risk. Modern finance theory calculates discount
rate according to the capital asset pricing model using the weighted average cost of capital(wacc). In
determining cost of equity, risk is determined from the securities volatility. This technique is irrational
since long-term holders worry about factors depreciating return on equity, not the volatility(moods of
Mr. Market)

Discount rate should consist of the potential loss of capital and how much that risk means to you
individually. I explain it to my friend in this analogy: If you were a millionaire, would you sell weed
and take the legal risk of imprisonment? Obvious answer no. Now, if you were broke and homeless but
had the opportunity to make a few flips, would you do it? Most likely yes.

Since ICO’s are so new calculati ng discount rate is more difficult, but the best policy is to ere on the
side of caution. I would start with 10% then add corporate governance risk premium of 5%, lack of
significant sample size premium 5%, and estimated operational risk premium of 5%. This would total a
25% discount rate.

d. expected value using subjective probability

The final investing concept is really a statistical one that determines value by: amount won x
probability of win – amount loss x probability of loss. Amount won is the discounted cash flow value
minus the ICO price per coin. This method is rational since outcomes is close to binomal, as the
company will likely do very well or totally fail. As an example: you calculate discounted cash flow
value to be $40 and ICO price is $5 while probability of succeeding is 10% ($35x10% - $5x90% = -$1)
So you should not invest as winning does not compensate for the probability and amount lost.

Section 4 – ICO Screening & Pitfalls

a. how many return capital? How many succeed? How many fail?

b. Screening for the good, the bad, and the ugly

ICO trackerLists ICO crowdsales according to five factors: white paper, roadmap. team, escrow, ICO
conditions.

ICO rating ICOrating specializes in evaluating companies that are planning an ICO. Its analysis seems
thorough and objective, reviewing companies as potential investment objects.

ICO countdownGives spotlight to new crypto projects with a focus on crowdfunding methodology.
Also says it conducts due diligence to ascertain viability of these projects

ICOO – Services for listing an ico. Understand services and look for confidence pump to gauge for
overconfidence bias and overbuying

c. Identifying frauds
provide a few examples
SEC has obtained an emergency court order to freeze the assets of PlexCorps, Lacroix, and Paradis-
Royer and further seeks “permanent injunctions, disgorgement plus interest and penalties. For Lacroix,
the SEC also seeks an officer-and-director bar and a bar from offering digital securities against Lacroix
and Paradis-Royer.”SEC alleges that Lacroix, Paradis-Royer and PlexCorps violated the anti-fraud
provisions, and Lacroix and PlexCorps violated the registration provision, of the U.S. federal securities
laws. The regulator says:
“PlexCorps marketed and sold securities called PlexCoin on the internet to investors in the U.S. and
elsewhere, claiming that investments in PlexCoin would yield a 1,354 percent profit in less than 29
days. ”

The SEC alleges that Maksim Zaslavskiy and his companies have been selling unregistered securities,
and the digital tokens or coins being peddled don't really exist. According to the SEC's complaint,
investors in REcoin Group Foundation and DRC World (also known as Diamond Reserve Club) have
been told they can expect sizeable returns from the companies' operations when neither has any real
operations.
Zaslavskiy allegedly touted REcoin as "The First Ever Cryptocurrency Backed by Real Estate."
Alleged misstatements to REcoin investors included that the company had a "team of lawyers,
professionals, brokers, and accountants" that would invest REcoin's ICO proceeds into real estate when
in fact none had been hired or even consulted. Zaslavskiy and REcoin allegedly misrepresented they
had raised between $2 million and $4 million from investors when the actual amount is approximately
$300,000.
According to the SEC's complaint, Zaslavskiy carried his scheme over to Diamond Reserve Club,
which purportedly invests in diamonds and obtains discounts with product retailers for individuals who
purchase "memberships" in the company. Despite their representations to investors, the SEC alleges
that Zaslavskiy and Diamond have not purchased any diamonds nor engaged in any business
operations. Yet they allegedly continue to solicit investors and raise funds as though they have.
“Not long after the Opair token was listed on exchanges, lots of coins were rapidly dumped, the main
website was taken offline, and the team went silent.”

SEC's complaint, filed in federal district court in Brooklyn, N.Y., charges Zaslavskiy, REcoin, and
Diamond with violations of the anti-fraud and registration provisions of the federal securities laws. The
complaint seeks permanent injunctions and disgorgement plus interest and penalties. For Zaslavskiy,
the SEC also seeks an officer-and-director bar and a bar from participating in any offering of digital
securities.
The SEC's investigation, which is continuing, has been conducted by Jorge Tenreiro, Pamela Sawhney
and Valerie A. Szczepanik. The case is being supervised by Lara S. Mehraban. The SEC encourages
victims of the alleged fraud to contact Ms. Szczepanik at (212) 336-1100.

d. High Burn rate

There aren’t really customers that can generate revenue. There are, however continuing costs. If there’s
a foundation managing the funds, they must be paid. The developers of the coin must be paid. There are
often marketing arms of these coins that must be paid.the revenue raised at the ICO must essentially
last through the token team’s entire life, which is why so many coins set aside a large number of coins
for future funding. But this presents a problem, the supply then is controlled by the token team, which
essentially means that the token holders can get diluted at any time. Supply increasing means demand
decreases, meaning that value can be taken from token holders at any time. To be fair, though, there are
ways to lock up additional supply in a pre-determined way, but that in itself introduces risk in not
having flexibility to raise funds at opportune times.

e. Open source
Another risk to an ICO is the fact that the software is open-source. It’s possible, of course, to do an ICO
on a coin that’s got a closed binary, but that’s not likely to be used by anyone that values security. A
closed binary may steal your tokens or even infect your computer.
The fact that the software is open-source means that it can be copied at any time and all features with it.
Whatever utility the coin may have may very well be available in another coin for essentially the
marginal cost of creating a new coin. Or, if it’s useful enough, made compatible with payments in
another token.
The implicit promise is that the developers of the coin will stay on to produce value for that coin and
not produce another coin. Yet this is not a promise to be counted on. First of all, there are very few
financial consequences to starting a new token with the same properties. Second, depending on how
much an ICO has raised, there’s a motive to copy.

F. Dilution & Supply manipulation

Section 4 - ICO Qualitative analisis

a. research underlying business concept

what is rational amount the company will grow.
b.Sustainable competitive advantage
first mover
network effect

c. White Paper research

d. Identifying the executive team? Special or not so special advisors?
Identifying the officers, special advisors, and even employees is crucial to understanding the capability
of the finished product. Look for fluffy CV’s. Dig for them on linkedin. Call in for references. Do the
executives have a solid track record? Or does the bio just read “entrepreneur & crypto enthusiest”?

e. Applying Inference
Using inference has always been a tool to coming towards a probability. Often inference will comein
the form of intution.
PR
Consultants

Section 5- Quantitative ICO analysis

a. Valuing the Coin

There are two types of ICOs related to coins – those
Look into chris burniske value technique

b. Modeling current and future asset

c. Setting a discount rate

As explained in earlier section, disount rate isa way to discount uncerttain cash flows

Your risk tolerance will depened on how much the money means to you, how old you are etc. Factors
based on the ICO will be risk factors you identify and general risk factors of ICOs.

Section 6 – Hunting for Expected Value

a.Weighting system for the investment information

b.Scenario analysis
c. Calculating Expected value

Section 7 – Selling ICO

a.Secondary market and selling your Coins
So assuming the executives dont take your money and run, and they happen toexecute the whitepaper
and the coins develop value, you now need to determine if and when you will sell your coins.

b. Using thesis and expected value to determine selling range

Once the coins trade at a range near or greater then your original expected value, you should evaluate
your original thesis. The price to sell at can be a function of many things – but mainly its price and the
 Section 8 – ICO Total & after-tax return

a. total return
stacking value

b. Tax Status in US

IRS

creative techniques

1031 exchange