Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


A Cautionary Tale for ICO Investors

“Investment is simple; but not easy,” – Benjamin Graham.

There’s a great cautionary tale for initial cryptocurrency offering (ICO) investors over at Bloomberg Technology. It involves an altcoin named Monaco (MCO) and Visa (NYSE: V).

Back on 17 May 2017, Monaco’s value shot up by 698% on claims the company had a deal to issue a Visa-branded debit card, Bloomberg Technology reported. There was no such deal and Visa had never had heard of Monaco.

That did not stop Monaco Technology GMBH from putting out a press release touting the benefits of its new-Visa card and App that apparently did not exist on 24 May 2017.

“The Monaco VISA® Card & App gives users the ability to spend, send and exchange money at perfect interbank exchange rates, saving them EUR30-40 on every EUR500 equivalent spent,” Monaco Technology founder Kris Marszalek said in the press release. The problem with that statement was that the card was purely theoretical when the press release appeared.

The Visa Card that did not exist

Instead of a card; all Monaco Technology apparently had, was an application to issue a card through Wisecard AG, a licensed Visa issuer, Bloomberg Technology reported. The application was still being reviewed on 2 October 2017 when the Bloomberg article appeared.

Instead, Monaco was trying to increase the value of its ICO; MCO, which apparently occurred on 19 June 2017. The idea was to use the claims about the Visa to raise Monaco’s price which apparently worked.

This sounds like “pump and dump;” a classic scam in which fraudsters issue fake claims to increase the value of a worthless stock they are selling. The difference is that pump and dump is being used to push ICO tokens rather than stocks here.

ICO offerings seem to be a perfect vehicle for “pump and dump” because there is little regulation or oversight in the sector. Another problem is that the mainstream media has largely ignored the ICO market making it easy for fraudsters to make ridiculous claims.

Why ICO Investors need to beware of Visa and MasterCard Claims

Every ICO investor needs to be leery of debit and credit card claims by cryptocurrency companies. Issuing a Visa or MasterCard product is far harder than most people realize.

First, you need to get a license to issue one in a particular area. To get the license you will have to comply with banking regulations or possibly get a banking license. Then the cards may only work in certain countries because of the restrictions.

Most of the cryptocurrency Visa brands like TenX try to get around this by working with issuers; such as Wave Crest Holdings. The issuer; not the cryptocurrency company, creates and services the actual cards which can create problems.

TenX found this out the hard when Wave Crest decided to stop issuing Visa cards outside Europe. That means all the TenX Visas outside of Europe, Turkey, and Israel are scheduled to shut down on October 16, 2017. The Singapore-based TenX is now scrambling to find another card issuer for North America, Latin America, Asia and Australia.

At least TenX has an actual Visa that really works, Monaco did not even have such a card. All it had was an application for one, which has not yet been approved.

Cryptocurrency Visa and MasterCard products will be a Great Investment

Despite all this, I think that cryptocurrency debit and credit cards, especially those with the Visa and MasterCard brand names will be a great investment someday. The company that gets one working and figures out how to market it will make a lot of money.

It will probably take a lot longer to roll out such a card and get it to work than most people realize. A likely scenario will be that the cryptocurrency company itself will have to bite the bullet and become a bank or a direct-card issuer. That will cost a lot of money and require deep-pocketed corporate backing.

Change Bank and TenX seem to be moving in that direction but it is not clear if they have the resources to issue such a card or acquire a banking license. Until they do it would probably be a good idea for investors to stay away from such companies.

Most investors should also consider staying away from initial cryptocurrency offerings until there is some effective enforcement here. It looks like there is a lot of fraud going here, and some poorly organized companies out there. Only persons that can afford to lose the money should be investing in ICOs right now.

Don’t Lose Money!!

Most cryptocurrency investors should confine their purchases to established altcoins such as Ethereum, Bitcoin, Litecoin, and DASH, everything else in this sector looks too risky right now. All cryptocurrency investors need to always keep Ben Graham’s first two rules of investing in mind. Legend has it that those rules were:

Rule 1: “Don’t lose money.”

Rule 2: “See rule one.”

Those rules apply to ICOs just like any other class of investments. Remembering them can save cryptocurrency investors a lot of grief.