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Opinion

Uber IPO Aftermath no Surprise to ICO Veterans

IPO

Uber’s IPO last week raised just over $8 billion but shares traded down 6.7% on Friday. Investors were out of pocked by $655 million reminding us that in a gold rush, the shovel-makers always win.

Uber’s IPO was one the biggest event on Wall Street in years, intended to show that the tech sector was booming and the recent stock market rally was justified. The ride-hailing app has been going from strength to strength, and so – as night follows day – a public offering seemed to be the way forwards. But the reality wasn’t as rosy, in a scenario the crypto world will recognise instantly.

Bloomberg writes, ‘Morgan Stanley investment bankers stand to reap millions of dollars in fees for leading Uber Technologies Inc.’s initial public offering last week. Yet wealthy clients are facing losses.’

In 2016 Morgan Stanley gave its wealthy clients early access Uber, selling shares to early buyers at $48.77 each. When the company went public last week, however, the market didn’t agree on this valuation. Uber shares dropped 7%, leaving those wealthy early investors out of pocket but Morgan Stanley richer to the tune of many millions of dollars in fees. Early holders can’t even dump their shares, since they’re locked up for 180 days.

Sound familiar?

Short-term pain, long-term…?

The IEO craze is 2019’s answer to the ICO craze of 2017 – which was roundly criticised by the mainstream financial industry and regulators alike. Tokens were sold on little more than a marketing-oriented white paper and a promise. Many crashed after launch; others pumped before they dumped. IEOs are supposed to be a step in the right direction, since they have the backing of exchanges and their legal and corporate structure, as well as KYC. But having a captive audience for token sales isn’t the same as price discovery on the open market. Ocean Protocol launched its IEO on Bittrex on 30 April, at a price of $0.12 per token. Two weeks later, it is trading at a quarter of that. Veriblock’s IEO sold out in 10 seconds, raising $7 million at $0.10 per token. VBK is currently trading at a third of its IEO price.

In both cases, wider market conditions have contributed. The US stock markets have pulled back recently, taking Uber’s freshly-released shares with them. And bitcoin’s rise from $5,000 to $7,000 has prompted a flight from alts to BTC. But that won’t be much consolation to those who bought at IPO and IEO hoping to turn a quick profit.

Risk and return, not flip and forget

There is an argument that says that initial offerings should not be about a short-term flip for profit. Risk and return should be aligned, and the market crashing is just a reflection of the fact that sometimes there is demand post-offering, sometimes there isn’t. You can’t guarantee immediate 100% gains – or any gains – in crypto or the mainstream financial system. Long-term investors may find they profit handsomely, though there are never any certainties.

The fact that ‘investors’ seem to believe there are is evidence that something is very wrong. The fact that brokers and exchanges have incentives in the form of commission fees to sell as many shares or tokens as they can, saturating the market and soaking up all demand, is further evidence that the model will need fine-tuning.

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