Are hedge funds good for crypto space? While they can bring in hundreds of billions they also may pump and dump
The latest Bloomberg article highlights how hedge funds can flip ICOs leaving honest investors holding the bags. In light of the announcement of the SMTs for Steem and the official promotion of the ICOs by Steemit it is now important to consider the possibility that there may be hedge funds and schemes involved in these ICOs. Consider that on Steem all transactions are public with no private transactions so in some ways it's very transparent and will be extremely traceable if people try to do anything foolish. At the same time the hedge funds don't offer any real utility to the crypto space besides to bring liquidity and then how do they make their profit?
“It’s not healthy for the ecosystem, and it’s pretty abusive,” said Kyle Samani, a managing partner at Austin, Texas-based Multicoin Capital, which invests in ICOs. “They are getting a discount because they are a big name, and they think it’s going to draw the retail investor. It’s the greater fools theory –- I’ll buy it if there’s someone who’s more of a fool than me.”
Beware of ICOs which invite huge VCs to invest at an earlier time and or lower rate than retail investors. There is the risk that the whole thing could be a pump and dump scam involving collusion between the VC and the developers of the crypto project. SMTs will bring the scam ecosystem to Steem and while it will probably boost the value and price of Steem I wuold hope Steem has other ways to build demand for Steem which involve actually using Steem such as gamification.
Conclusion
Communities is a good idea which we have wanted for a long time and ICOs are nice too but how do we bring it together in a way which continues to build the Steem community? In addition, is it going to be possible to do fundraising for donations, non-profits, etc which aren't "ICOs"?
Suppose you want to help the poor, or the homeless, or victims of the terrorist attack in Nevada, or victims of the hurricane? We need to figure out ways to use tokenization for these use cases as well and maybe let these use cases also increase demand for Steem.
Very interesting dana-edwards.
I'd never really considered hedge funds ability to mass flip an ICO.. it might backfire on them though and if it does it might put them off from repeating. I would have though the negative publicity from performing such stunts would damage an HF rep ? Also their whole business model is based on reputation and profitability..
I reckon the real pump and dump groups are the type of smart ass traders who work for the likes of Jamie Dimon and who are the Sharks picking off the tourists. They have the knowledge, networks, resources and liquidity to make millions on the side, while making sure their bosses don't know how much they're creaming from crypto, probably from their office computers !
It's happening already. It would explain where some of the money comes from. I actually think it could be extremely profitable for hedge funds to profit off the ICO hype and inflate a huge bubble because right now the majority of retail investors don't even know what this is yet so the bubble is just starting.
In a few years when retail investors get involved then this could be a trillion dollar space. Right now it is maybe 100-200 billion.
I agree, it's not even in the mainstream consciousness yet.. in the same way the internet was really thin on the ground in the mid 90's !! by 2020 crytpo will be a trillion dollar space. There will be huge losses from ICO fallout just like the dotcom bubble.. but it doesn't mean the internet went away. pick your currencies carefully and I think you'll stay fine :)
@dana-edwards yes very true your words
I also confused the existence of such news, what may have been many people who do stupid, what may be stupid indeed,
thank you and good news.
do not forget to update always latest news and share to us.
well on a positive note, you can make a killing and get out. there are lot sof hyip out there that have made people thousands
I believe hedge funds are like the flu. You think you would be better without them, you hate it when they act up, but in the end, it usually makes you stronger. Let me exemplify: the big picture is that any public company or coin(or cryptocoin) is gonna face market manipulation sooner or later. The good sign is that big money is shifting their efforts from trying to kill bitcoin and cryptos in general to trying to control them. Thats an implicit sign of acceptance into the mainstream. Hell, even some big players are considering releasing derivatives based on bitcoin. We should take this as a good sign: now is where the real strength of most cryptos get tested against the top players in the financial world. Also, the diminishing returns(some even call it oversold) of the traditional stock market is making the sharks seek more profitable waters.
What would happen? Well, for once we might see less bullish(ascending) markets and more bear(descending) and lateral(sideway) markets. But as you know, you CAN make money on bear and lateral markets. Its just slightly more difficult and takes more knowledge, but that just means that traders have to learn and professionalize more. It´s only short term investors in crypto that should be worried since that manipulation can make price action very jumpy in the short term but in the real long term(I´m talking about yearly moving averages) it makes little difference. ICOs are a whole different beast however. It IS true they can flip an ICO, killing a good project before its launch, or even kill an emerging coin just after its launch, but those are the risks on a public economy and we should view them as CHALLENGES. The biggest one is providing a safenet system for worthy ICOs in case they get manipulated. Exciting times people, now we´re solving problems from the real economic world, AKA how to control the sharks. I look forward to hearing comments/thoughts on that.
(No article source, just my thoughts)
I agree with this possibly being something horrible for certain people. Especially those who decide to HODL. The only ones that profit will be those who have been HODLing from the beginning and ride the wave past the peak.
It could however lead to certain ICOs that are legitimate and useful to have tons of extra income. If the hedge funds see benefits to the ICO, they may keep the investment to see if it grows further. It is basically an asset to them right?
Interesting subject and thoughts. Lol, ever since I watched the Bernie Madoff cable movie starring Michelle Pfieffer, hedge funds give me the jitters. Now, perhaps, you bring up some "real" reasons ;)
I could see the VC money being problematic in shitty ICOs with poor/opaque business plans.
Maybe if the VCs were restricted from selling their stake until certain milestones are successfully met, the chances of a P&Ds would decrease substantially.
Or maybe if legislation were passed that would require VCs to publicly announce their investments in ICOs and the exact terms.
There are several ways to approach this issue.
Aside from fraud and opportunistic token issues (i.e. tokens without any real inherent, functional value), this is the next big risk on the ICO landscape, in my opinion. Hedgefunds are simply in this for a quick buck. Their ability to buy in bulk at lower rates along with the capacity to perform massive limit sell dumps when and if they need to, renders any token - with a genuine business model behind it or otherwise - vulnerable to price manipulation and distortion.
And if this happens often enough, particularly without ICOs setting upper limits on inward investment, and without any regulatory frameworks, this these risks all combined could kill the ICO phenomenon - and by extension - the general momentum of Blockchain technologies. And that would be a shame given their revolutionary potential to shift business, sciences and the arts into a new mode of development that opens the door to transparency and integrity that arises from trustless platforms.
Upvoted and following, btw. If you take an interest in ICOs specifically, please feel free to follow us and our own research in the ICO field. Thanks.