History Has Some Ominous Warnings for Investors in Initial Coin Offerings

Joe Weisenthal (0:10)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Joe Weisenthal.

Tracy Alloway (0:16)

And I'm Tracy Alloway.

Joe Weisenthal (0:17)

So Tracy, you know, there's this really big story in markets these days, and in finance, and it's tech. And we kind of haven't been covering it very much.

Tracy Alloway (0:28)

I'm scratching my head because I feel like we've been covering a lot in markets. Do you mean on Odd Lots or?

Joe Weisenthal (0:35)

No, yeah, yeah, sorry, on the podcast.

Like every time I tweet that we have some new episode, there's like this one topic out there. They're like, when are you guys gonna talk about X? And you must have gotten it, right?

Tracy Alloway (0:50)

I think I have an inkling of what it is. But didn't you do a whole episode on this by yourself and I wasn't there?

Joe Weisenthal (0:57)

Yeah, we did, it's true. So I guess that sort of ends the suspension.

Tracy Alloway (1:03)

It was a good effort, Joe, good effort.

Joe Weisenthal (1:05)

We had like the whole bubble series, of course. Remember that?

And every time we would like, oh, and today we're talking about another bubble. And someone on Twitter was like, oh, you're finally gonna be talking about tokens and initial coin offerings. And every time we did it, they were disappointed. But it is true, you know, we've written and there's been a lot of Bloomberg coverage about initial coin offerings, but they've become such a phenomenon. And so many people are talking about ICOs and tokens and cryptocurrencies that is kind of like, it feels like we have to talk more about them on Odd Lots.

Tracy Alloway (1:38)

Oh, okay.

Joe Weisenthal (1:39)

If you insist.

Tracy Alloway (1:39)

I know. I've been trying to avoid the topic. In fact, I did such a good job of avoiding it that when you did that whole episode of ICOs, I wasn't even there. But for our listeners who don't know what they are, who've been living under a rock, I guess, give us a recap of what exactly we mean.

Joe Weisenthal (1:57)

Well, basically everybody by this point has heard of like cryptocurrencies and they don't understand them, like, you know, Bitcoin and so forth.

But what we've seen an explosion of in the last year really is organizations and companies trying to launch their own coins. And so launching some new network with the idea that you would buy this coin and buying the coin would fund the creation of a new network. You would have to use the coin to use the network. And if everyone wants to use the network, then the coins would rise in value and everyone could make a fortune. At least that's sort of the idea. And we've just seen day after day, it feels like there's dozens of these new coins being launched. And the question is, is this a new funding paradigm? Is this a new way that markets will incentivize the creation of new platforms and networks?

Or is this just a bubble slash a get rich quick scheme and there's really nothing there? And it feels like this is one of the biggest debates happening right now.

Tracy Alloway (2:55)

Yeah, more like I see, uh-oh, ha. I've been saving that one.

No, but there's, in all seriousness, there's a subtlety here, because you're talking about initial coin offerings, which are often these sort of new digital coins that are attached to the Ethereum blockchain network. And there's also tokens, which are usually a sort of system created to exchange services, basically. So there's two different things as they currently exist, but they all have a similar sort of goal, which is to get people interested and create this big network effect, as you mentioned.

Joe Weisenthal (3:32)

Totally. And they all have some of the same language and ideology about decentralization and subverting existing organizations and stuff like that. So there's a lot to dive into. Today we have a guest I'm very excited to talk to. We're going to be talking to Elaine Ou. She is a software engineer at Global Financial Access.

She is a contributor to Bloomberg View, and she has been following the initial coin offering and cryptocurrency space herself for many years, both on her blog and in her career and stuff like that. And I think she's a perfect person to talk about some of the technical aspects and the economic aspects of initial coin offerings and sort of hopefully guide us to an understanding of whether there's something real here or whether this really is just sort of a get rich quick scheme or a bubble that will all come crashing down.