How I almost lost money on a 50x coin
Crypto teaches you a new lesson everyday. And these lessons are even more intense when you lose money. That way you remember them for a much longer period. That’s primarily what happened with me recently. Yes, I invested in my first ever IEO (Initial exchange offering) and soon after I realised that it was a white collared scam. The project I was gunning for was called $Kasta.
Before we proceed, let me tell you that Bybit is a reputed exchange and lists top notch projects. However, I would still call it a scam and we’ll come to that shortly. The aim of this post is help you make an informed decision if you ever decide to get into an IEO. So without further a due, let’s get started: How to invest in IEO.
What is ICO/IEO?
Blockchain technology has truly democratised wealth for investors and fundraisers alike. Back in 2017, projects would come and sell their native tokens through a process called ICO or Initial Coin Offering.
ICO hype of 2017 was so gigantic that a total of $4.2bn was raised within an year. However there were a few concerns around this methodology:
Since anyone could come up with an ICO, some projects leveraged this situation and dumped the unknowing investors with shitty tokens. As a result a lot of ICOs of 2017 hype have zero value today. Therefore community had to come up with a way to self regulate this so that retail investors are safeguarded.
ICOs were an excellent way to raise money but once again it was limited to a certain clout of people who were highly active in crypto. Compare that to IPOs in stock market where retail participation is extremely high and widespread. So, there had to be a way to reach out to masses to raise funds.
And even if people managed to find a way to invest in an ICO, the barriers to entry were enormous. For starters, no body knew how these launch pads (where these ICOs were hosted) worked. Apart from that, moving money from an exchange to a different platform and then later trying to liquidate your money caused undue resistance.
What is IEO?
With the aforementioned problems, industry was in the dire need of a solution to continue raising money. That’s where these decentralised exchanges came into picture. Soon, ICOs took the shape of IEO: Initial exchange offering.
These exchanges like CoinDCX, Binance etc. were already big and had KYCd customers on their platform. Even from the investor’s perspective it was fair to assume that these exchanges conducted some level of due diligence before allowing these projects to list on them.
Apart from that, the resistance was almost negligible in terms of accessibility. Users were already investing using Fiat on these exchanges. They could very well take part in IEOs too.
Why was I Investing in IEO: KASTA
With that explanation out of the way, let’s start understanding the rationale behind investing in KASTA. KASTA is an application which allows people to send cryptocurrency to their peers at a lightning fast speed without any fees. It was supposed to be the paypal of crypto industry.
But that’s not my motivation. I was excited about the fact that one of the co-founders of the project was @TheMoonCarl. For those of you who don’t know, TheMoonCarl is also a renowned Twitter influencer with about 1M followers. Since all the crypto projects are community driven, I thought to myself: why not ride the hype wagon?
So I decided to invest some of money in the IEO. This IEO was being hosted by an exchange called Bybit. The prospects of this project doing 50x on the listing day itself were extremely high. So I decided to take a punt with Rs. 30,000.
How to Invest in Bybit IEO?
This is where I got duped. Bybit wont offer you a straight forward way of investing in these IEOs. Instead, they would complicate it a bit. Here’s how:
A. In order to be eligible for the IEO, you need to hold certain amount of BIT token (native token of Bybit exchange).
B. This number was fixed at 50 $BIT average. There is something called a snapshot period. Bybit would check the number of $BIT in your wallet every hour for complete 5 days and the average balance should not come below 50 $BIT. This means that sooner you invest and hold $BIT on the Bybit exchange better it is. More you delay it, higher would be the quantity to hold to maintain the average.
C. After that, the subscription period would start. This is a small 8-12 hour window where you can invest in the IEO of your choice. Obviously this is subject to the eligibility as discussed above.
D. Once invested, your $BIT would be locked and after the subscription period ends, you would get the allocation using the following formula:
Number of tokens allotted: (Number of $BIT Staked/Total number of $BIT subscribed during allocation) * Total allocation of KASTA
Simply put its a simple unitary method of allocating tokens.
Where’s the Catch?
So far so good right? That’s exactly what I thought. So using my Rs. 30,000 I was able to invest 150 $BIT in the subscription period.
The total allocation of KASTA was 250,000,000 and the initial price was set to be $0.04.
But because it was an extremely hyped project, the number of $BIT staked for $Kasta was 200x.
That’s where the fun started. I got an allocation of 36 $Kasta with the money I had put in. Rest of it was returned to me in $BIT.
Now 36 $KASTA costed $1.44. And as soon as KASTA listed, it immediately jumped to $1. That means, I now had $36 worth of KASTA.
But remember how I got remainder of my money (~$382) back in the form of $BIT? So it wasn’t just me. A lot of people got majority of their funds back. Since IEO was oversubscribed by 200 times, imagine the amount of $BIT which was now floating in the system.
So what happened to that $BIT? Yes, mass sell off. People were selling their extra $BIT left right and centre. Why? Because KASTA was the only reason they had purchased it for. Just like me!
As a result, $BIT crashed about 20% in less than 15 minutes. This meant that even if I made a measly profit of $36 on KASTA, I stood a chance to lose way more through $BIT crash.
Should We Stop Investing in IEOs?: My Learning
Short answer is no. IEOs are a great way to make money. But here are a few things to keep in mind:
A. Whale Mindset:
The only people who made insane returns through this IEO were the ones who had invested huge sums of money. That way, the portion of their $BIT that purchased KASTA was higher than the total allocation. Hence, they made a good profit.
For small retail investors like myself, we got peanuts in allocation and hence larger part of the wealth was put at risk during the crash.
So if you are going in, go big or go home.
B. Accumulate $BIT
If you are going to play this game for a while, its better that you hold the native token of the exchange at a lower level. For example, I now know that $BIT lists good projects in IEOs. So I would purchase and hold $BIT before it starts pumping specifically due to IEO.
This way, post listing crash won’t impact me much.
This stands true for any exchange that you wish to invest with. DYOR.
Yes. If you are really interested in a project, study it’s fundamentals and go into it for a long period. For instance, I got into KASTA just for quick gains. Had I really believed in KASTA, I would’ve held it for an year or whatever to see if my $1 could become $100 some day.
This is possible only when you invest in fundamentally sound project with proper research.
Simply put, it’s not a get rich quick scheme. So don’t treat it like one.
Well, I know you sadistic pleasure seekers want to know the losses I incurred in this entire deal right? Well, I am sorry, I just got out on time. $BIT went up to $2.4 before the allocation period started and then started falling sharply. I managed to sell it at $1.9, which luckily was my buy price too.
Apart from that, market had just crashed that day so I could sell my $$ at higher rate through P2P in Binance which again saved my ass.
But hey, a lesson is still learnt. And that’s what matters right?
What do you think of this fiasco? Ever investing in IEOs?
Got questions? Want to take it to the next level? Reach out to me using your preferred platform from the links below
Until next time..
For our beloved “non readers”, I also do quick carousels on these topics over Instagram. Come join the fun. Hit me up here.
Btw, if you are a seasoned trader or just testing the waters with derivatives, here’s an exchange specifically meant for that. Head over to MCS using this link. Still not convinced? Join the vibrant community that is talking about MCS on Telegram, here.