Thread by @ByteSizeCapital

From Lambos to Winter, the ICO cycle is over.

The party has come to an end, but the fundraising bubble contains valuable lessons on cryptocurrency market cycles.

Our post mortem analysis of the 17-18 ICO bubble & what we expect in years to come.

The purpose of this thread is not to praise or denounce ICOs.

Instead, we explore the dynamics of the 17-18 boom, fitting ICOs into the broader picture of $BTC & altcoin market cycles.

ICO data courtesy of the @coindesk ICO Tracker.

coindesk.com/ico-tracker

@coindesk The story of ICOs begins in Stage 0, when there weren't many.

This was a time of extreme skepticism to anything that wasn't Bitcoin.

$BTC "Old Money" branded pre-mines as scams-by-default & any successful launch was typically a fair launch PoW or low valuation ICO.

@coindesk To get a sense for the sentiment of Stage 0, think of the following:

The "legitimate" coins of today - from @VitalikButerin's Ethereum to @cburniske-backed Decred - were viewed as "unethical" & greedy cash grabs.

bitcointalk.org/index.php?topi…
cointelegraph.com/news/decred-an…

@coindesk @VitalikButerin @cburniske Stage 0 was a quiet time where hype was quickly shut down.

Lead by a resurgence in $BTC, the market slowly began to transition to Stage 1: Exchange-Listed Alt Season.

It was here that retail exuberance began, as traders cleared the orderbooks of promising altcoins.

@coindesk @VitalikButerin @cburniske Some numbers on Stage 1:

1) Bitcoin ~2.5x'd
2) Global market capitalization ~5x'd
3) $BTC dominance fell from 84% to 39%
4) $ETH dominance rose from 7% to 34%.

Retail investors posted immense liquid profits - profits that would soon fuel a mania in ICOs.

@coindesk @VitalikButerin @cburniske The Bitcoin Cash hard fork marked the beginning of Stage 2: the era of the Moon Lambo.

A successful split gave $BTC investors a sigh of relief, with fresh media buzz painting a bright picture for Bitcoin.

@coindesk @VitalikButerin @cburniske The retail profits of Stage 1 weren't interested in measly $BTC yield, needing another avenue for Bitcoin-denominated yield.

Problem: the altcoin market was topping out, as Bitcoin began its 2017 run.

Solution: enter ICO madness.

@coindesk @VitalikButerin @cburniske Enter Stage 2.

Retail investors searched for the gains of legacy ICOs like $LSK & $STRAT, and the market responded in kind.

The ICO boom was in full swing, as influencers gained overnight notoriety & broadcast the formula for a 10x ("token metrics").

@coindesk @VitalikButerin @cburniske With spreadsheets everywhere, retail scrambled to sign up for whitelists, while founders salivated at the prospect of string-free capital.

During Stage 2, a back-of-the-napkin plan to build a "new blockchain" guaranteed at least $20M.

Double it if you mentioned "the unbanked".

@coindesk @VitalikButerin @cburniske By this point, any remnant of "Old Money" skepticism was drowned out by the masses.

It was a goldrush, with no time for skeptics.

Retail DD amounted to a quick skim of the website & influencer spreadsheets (or Spreadsheet Aggregators, as they would emerge).

@coindesk @VitalikButerin @cburniske During Stage 2, most money was raised in public sales, where teams sold a larger proportion of token supply (sometimes >50% of tokens).

The (relatively) small private sales of this period had a positive effect, as communities were larger & coin supplies were well distributed.

@coindesk @VitalikButerin @cburniske These were the heydays days of IDEX and EtherDelta - when coins had so much demand that they posted impressive ROI even before any official exchange listings.

@coindesk @VitalikButerin @cburniske But all good things come to an end.

As $BTC came crashing down from its $20k ATH, public sales began to cool down.

However, retail FOMO was simply the beginning of the ICO: Institutional Money was now determined to get its slice.

@coindesk @VitalikButerin @cburniske VCs who watched the gold rush in awe were racing to pull the trigger.

At the same time, cryptographers & academics realized they could finally have their work funded after decades of esoteric research.

This created the perfect storm for Stage 3: the "Professor Coin Era".

@coindesk @VitalikButerin @cburniske By Stage 3, an influx of Crypto VCs & Hedge Funds forced projects to pass higher standards of due diligence.

What this meant in practice: academic cryptographers became the rockstars of crypto, raising unicorns out of the gate.

@coindesk @VitalikButerin @cburniske Projects like @hashgraph, @ThunderProtocol, @teamspacemesh, @OasisLabs & @dfinity pulled together $100's of millions from institutional incumbents.

https://twitter.com/ByteSizeCapital/status/1073504803098001408

@coindesk @VitalikButerin @cburniske @hashgraph @ThunderProtocol @teamspacemesh @OasisLabs @dfinity As VC narratives & investing styles became the norm, there was a sharp shift in token sale dynamics:

1) Contrasting Stage 2, almost all Professor Coin money was raised in multiple private sale rounds
2) Each round commanded higher valuations ("up rounds" from traditional VC)

@coindesk @VitalikButerin @cburniske @hashgraph @ThunderProtocol @teamspacemesh @OasisLabs @dfinity 3) Public sales shrunk as tokens became less distributed & centralized in the hands of fewer parties
4) Lockups increased in line with a long-term VC approach.

@coindesk @VitalikButerin @cburniske @hashgraph @ThunderProtocol @teamspacemesh @OasisLabs @dfinity The mania continued.

This time, it wasn't about influencer spreadsheets, but "who was in".

Scalable blockchains abound, the only way to differentiate your Professor Coin was to get the best brands to back you.

The rest would follow.

@coindesk @VitalikButerin @cburniske @hashgraph @ThunderProtocol @teamspacemesh @OasisLabs @dfinity Despite a violent bear market, valuations continued to soar.

VC exuberance was at an ATH: even as $BTC tanked, crypto conferences remained exciting opportunities for deal flow.

Primary & secondary markets continued to lag.

Until they didn't.

@coindesk @VitalikButerin @cburniske @hashgraph @ThunderProtocol @teamspacemesh @OasisLabs @dfinity Around October 2018, a brief silence gripped the landscape.

And then, there was a rush to the door.

This time, it wasn't a race for gold, but a rush to offload SAFTs pre-TGE.

The party was over.

@coindesk @VitalikButerin @cburniske @hashgraph @ThunderProtocol @teamspacemesh @OasisLabs @dfinity While VC philosophies managed to shape the crypto investing landscape, Professor Coins still had to answer the call of $BTC.

Once smart money realized this, it no longer mattered how many academic papers founder X had written - alpha was drying up.

@coindesk @VitalikButerin @cburniske @hashgraph @ThunderProtocol @teamspacemesh @OasisLabs @dfinity Today, the market is in the early days of Stage 4: ICO winter.

Projects are struggling to raise & traders are flocking to liquidity.

Institutional investing has shifted towards equity deals in real infrastructure projects & listed "blue chip" cryptoassets.

@coindesk @VitalikButerin @cburniske @hashgraph @ThunderProtocol @teamspacemesh @OasisLabs @dfinity The market is once again transitioning to extreme skepticism - as it is now becoming commonplace to denounce altcoins as scams.

While the skepticism faded into obscurity during Stage 1, 2 & 3, prominent figures voicing bearishness on alts increasingly dominate the narrative.

@coindesk @VitalikButerin @cburniske @hashgraph @ThunderProtocol @teamspacemesh @OasisLabs @dfinity Exhibit A: @TuurDemeester on Ethereum.

https://twitter.com/tuurdemeester/status/1078682801954799617?lang=en

@coindesk @VitalikButerin @cburniske @hashgraph @ThunderProtocol @teamspacemesh @OasisLabs @dfinity @TuurDemeester Exhibit B: @ToneVays on the @whatbitcoindid podcast.

@coindesk @VitalikButerin @cburniske @hashgraph @ThunderProtocol @teamspacemesh @OasisLabs @dfinity @TuurDemeester @ToneVays @WhatBitcoinDid Recent coins with market traction have shunned ICO funding in favor of a fair launch PoW model (@grinMW & $BEAM).

Those still left in the market are embracing a new thesis for crypto-investing - one centered around Bitcoin & few unique, value-add altcoins (e.g. $XMR, $DCR).

@coindesk @VitalikButerin @cburniske @hashgraph @ThunderProtocol @teamspacemesh @OasisLabs @dfinity @TuurDemeester @ToneVays @WhatBitcoinDid @grinMW This indicates a "risk-off" transition to safety - a cold, lonely market devoid of the adrenaline, excitement or thrills of Stages 1, 2 and 3.

@coindesk @VitalikButerin @cburniske @hashgraph @ThunderProtocol @teamspacemesh @OasisLabs @dfinity @TuurDemeester @ToneVays @WhatBitcoinDid @grinMW Winter is here, but the worst is yet to come.

The market is still early in Stage 4:

1) Hundreds of millions in illiquid tokens are still marked-to-cost despite the collapse in primary demand, delaying inevitable blowups.

@coindesk @VitalikButerin @cburniske @hashgraph @ThunderProtocol @teamspacemesh @OasisLabs @dfinity @TuurDemeester @ToneVays @WhatBitcoinDid @grinMW 2) As per @BitMEXResearch's latest report, ICO teams continue to control large proportions of their coin supply.

blog.bitmex.com/tracking-us-25…

@coindesk @VitalikButerin @cburniske @hashgraph @ThunderProtocol @teamspacemesh @OasisLabs @dfinity @TuurDemeester @ToneVays @WhatBitcoinDid @grinMW @BitMEXResearch 3) ICO teams consistently fail to meet timelines or extend their roadmaps at will (e.g. @dfinity & @MineFileCoin).

medium.com/dfinity/dfinit…

@coindesk @VitalikButerin @cburniske @hashgraph @ThunderProtocol @teamspacemesh @OasisLabs @dfinity @TuurDemeester @ToneVays @WhatBitcoinDid @grinMW @BitMEXResearch @MineFilecoin Amidst this winter, many ICO teams are refusing to bear the brunt of the market & list on exchanges.

While raising with a promise for near-term liquidity, they continue to cite concerns about market conditions.

These teams are delaying the inevitable at their project's peril.

@coindesk @VitalikButerin @cburniske @hashgraph @ThunderProtocol @teamspacemesh @OasisLabs @dfinity @TuurDemeester @ToneVays @WhatBitcoinDid @grinMW @BitMEXResearch @MineFilecoin Refusing to list in a bear market in hopes for "better" market conditions represents a fundamental misunderstanding of the market cycle between $BTC & altcoins.

It may seem wise in the short term, but it will damage these projects' long-term prospects.

@coindesk @VitalikButerin @cburniske @hashgraph @ThunderProtocol @teamspacemesh @OasisLabs @dfinity @TuurDemeester @ToneVays @WhatBitcoinDid @grinMW @BitMEXResearch @MineFilecoin They are missing a simple yet powerful heuristic in crypto: the Lindy Effect.

Coins birthed in Stage 4 & Stage 0 who survive the winter & bear the brunt of extreme skepticism tend to significantly outperform in Stage 1.

@coindesk @VitalikButerin @cburniske @hashgraph @ThunderProtocol @teamspacemesh @OasisLabs @dfinity @TuurDemeester @ToneVays @WhatBitcoinDid @grinMW @BitMEXResearch @MineFilecoin Coins which launch quickly & weather the bear enjoy the effect of survival, while procrastinators fade into obscurity.

Few survive, but those that do, flourish.

The most promising coins publicly trading in 2016 significantly outperformed $BTC during Stage 1.

@coindesk @VitalikButerin @cburniske @hashgraph @ThunderProtocol @teamspacemesh @OasisLabs @dfinity @TuurDemeester @ToneVays @WhatBitcoinDid @grinMW @BitMEXResearch @MineFilecoin (There is a degree of survivorship bias here, but simple heuristics & fundamental analysis would have likely chosen a subset of these coins.)

@coindesk @VitalikButerin @cburniske @hashgraph @ThunderProtocol @teamspacemesh @OasisLabs @dfinity @TuurDemeester @ToneVays @WhatBitcoinDid @grinMW @BitMEXResearch @MineFilecoin So, Lambo to Winter, what's our outlook?

The long ICO winter will continue until the 2020 Halvening, when Stage 0 will be in full swing, similar to the 2016 Halvening.

@coindesk @VitalikButerin @cburniske @hashgraph @ThunderProtocol @teamspacemesh @OasisLabs @dfinity @TuurDemeester @ToneVays @WhatBitcoinDid @grinMW @BitMEXResearch @MineFilecoin A small portion (<10%) of the mega-ICO projects will deliver valuable networks.

Those that delay MainNet launch & public trading the longest will be the least likely to survive long term.

@coindesk @VitalikButerin @cburniske @hashgraph @ThunderProtocol @teamspacemesh @OasisLabs @dfinity @TuurDemeester @ToneVays @WhatBitcoinDid @grinMW @BitMEXResearch @MineFilecoin As for the next cycle: a resurgence in $BTC will lead the next wave of altcoins into Stage 1 as the cycle repeats itself.

Will ICOs make a comeback? This remains to be seen & will depend on regulatory developments.

Regardless, there is nothing as certain as individual greed.