The Wall Street Journal should know better.
It's bad enough that some investors view initial coin offerings (ICOs) as a digital get-rich-quick strategy.
But it's irresponsible for the nation's most-trusted investing publication to encourage this idea.
On July 7, WSJ ran a story on its website with the headline, "Forget an IPO, Coin Offerings Are New Road to Startup Riches."
The story notes that ICOs have already raised $1 billion in 2017. The first quote, from a Silicon Valley lawyer who advises startups on how to structure their coin offerings, is "It's very hot right now."
The label on one of the charts, which shows the amounts raised by the biggest ICOs so far this year, is "Ka-ching." Another chart showing the increase in ICO amounts raised by year is labeled "Virtual Bonanza."
Reporter Paul Vigna waits until a third of the way through the story to point out the risks, but only spends just four paragraphs on them before returning to more examples of ICO successes.
Here's why WSJ's rosy portrayal of ICOs is so troubling…
Initial Coin Offerings Have Been Hammered This Year
While Vigna focuses a great deal on the extraordinary amounts of money that ICOs have raised – several recent ones have brought in more than $100 million – he fails to point out that most of the cryptocurrencies launched with ICOs this year have plummeted in value.
Urgent: An incredibly rare gold anomaly is shaping up in the markets as we speak — one that has occurred ONLY twice in the past 20 years. And it's about to happen again. Details here…
And we're not talking about 15% to 20% pullbacks. Most of the biggest ICOs from the past few months are down 30% to 60%.
One cryptocurrency, SonM, raised $42 million in its June 16 ICO. The concept behind it is to use cryptocurrency to create a cloud-based computing platform. But since then, its SNM token has cratered 90% in value, from $0.42 per coin to $0.04.
The Status ICO on June 28 raised an impressive $90 million. Status is a messaging platform that aims to link Ethereum's decentralized applications (Dapps) to other widely used platforms, such as Android and iOS. A compelling concept, but the SNT token has plunged 59% in less than two weeks.
Another highly anticipated ICO, the Basic Attention Token (BAT), raised $35 million in its June 1 ICO. These tokens are intended to integrate with the Brave web browser – a pretty good idea from an established operation. But the BAT cryptocurrency is down nearly 45%.
And the list goes on. The BNT tokens for Bancor, which raised $153 million on June 22, are down 55%. MobileGo raised $53 million on June 11; its MGO tokens have fallen 68%. TenX raised $64 million just days ago (July 8) and already is down 37%.
While ICOs have great potential as a way to crowdfund startups based on digital currencies and the blockchain, this form of investing is very new territory.
It's easy for investors to look at the huge increases in the price of Bitcoin and price of Ethereum and think they need only "get in on the ground floor" of any new cryptocurrency to become rich practically overnight.
But the reality is a lot more complicated…