Why is IEO generating big returns?

What is IEO and is IEO profitable? What is IEO and is IEO profitable? AtoZ Markets has created an IEO guide for all beginners to learn the basics of this new crowdfunding type. 

July 24, 2019, | AtoZ Markets – 2019 has marked the flourishing of fundraising practice through Initial Exchange Offerings (IEO). The popularity of IEOs overshadowed the Initial Coin Offering (ICO) projects, of which many experts that ICOs is a dying market. However, it is still a mystery in what made IEO so popular and why this kind of crowdfunding is generating such big returns? For those interested in launching an IEO, AtoZ Markets has created an IEO guide. 

What is IEO? IEO Guide for beginners 

The Initial Coin Offering practice emerged in 2018. It has evolved from ICO as another option of crowdfunding, where Initial Exchange Offering (IEO) serves as an intermediary between contributors and projects.

On behalf of a token issuer, a cryptocurrency exchange administer an IEO. A token issuer in his turn is a new venture that is creating a cryptocurrency as an asset class to raise much-needed capital.

At the moment, the crypto community is getting ready for the IEO gold rush. Excited investors are looking to make a quick profit; willing to invest money. However, sometimes without understanding the IEO fundamentals. Nevertheless, it continues attracting more enthusiast due to its ability to bring high profits. If you are interested in this new type of crowdfunding, then read AtoZ Markets IEO guide first.  

Is IEO profitable?

Is IEO profitable? The global crypto exchange Binance held the first successful IEO in 2019. Back then the San Francisco-based internet technology company BitTorrent Inc. had raised around $ 7.1 million. When selling 50 billion of its tokens on the Binance Launchpad platform.

As per media reports, in just 14 minutes, BitTorrent managed to raise $ 7.12 million. Since the beginning of 2019, at least 5 crypto exchanges have decided to conduct IEOs on their platforms. The success of Binance has encouraged many crypto companies to follow Launchpad footsteps, such as the IEO of Bitfinex. Hence, this trend can certainly be observed in the foreseeable future.

Driving forces behind Initial Coin Offerings and their profits 

New digital assets with small capitalization (market capitalization of less than $ 100 million) are highly reflective and are due to two key variables: the volume of the exchange (ExVol) and market capitalization (MCAP).

Reflexivity refers to circular relationships between cause and effect. Within economics, it shows the self-reinforcing effect of market sentiment, whereby rising prices attract buyers whose actions drive prices higher still until the process becomes unsustainable. This is an instance of a positive feedback loop.

The greater the volume of purchases in relation to the total market capitalization of an asset, the higher the efficiency of its cycle of reflexivity.

The aforementioned speculative demand can be quantified using the ExVol to MCAP ratio, which can offer investors the best tool for assessing risk and return on these speculative assets.

Quantitative analysis 

The effectiveness of the ratio of speculative demand (ExVol to MCAP) to the price of IEO may change, as the asset is redeemed. For example, the first 60 days, the first 180 days, the first 360 days, and historical (since inception). Reliable MCAP data for newer Initial Coin Offerins typically do not cover 60 days, so only historical data is calculated.

The speculative demand ratio is a very valuable signal for investors who are looking at Initial Coin Offering or new digital assets. Especially during the first 180 days of existence. After 180 days, the ratio is still useful for predicting prices, but its signal is decreasing. Presumably, as the asset matures, the fundamental factors affect the price more.

For example, the historical correlation of bitcoin with the price is only 0.02. However, for newer Initial Coin Offerins, the correlation of the ratio of speculative demand is likely to increase in the coming months. Therefore, current or potential investors should closely monitor the tendency of the relationship. As a directional indicator of risk and reward.

Will this type of crowdfunding stay forever? 

Crypto exchanges have become the main driving force for Initial Coin Offerins. A study by CRC Capital, a Chinese cryptocurrency investment bank suggested that IEO’s are in for a long-term. IEOs are less time-bound, whereas ICOs are usually set in a short time frame. It also stated that the Initial Coin Offering’s mechanism resembles more to the traditional market IPOs than ICOs.

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