Ethorse: Yay or Neigh?
There are some ICO’s which are frankly good for nothing more than a quick flip. At the lower end of the spectrum, there are a lot of low cap ICO’s which fall into this category. Initially I considered Ethorse, which I mentioned in a previous article as a sure fire winner for easy gains, as one of these. However, having had a chance to think properly about the project, I think the concept at least is one that will see a lot of use.
The concept is simple. People place their bets on a cryptocurrency that they believe will increase the most amongst all competing cryptocurrencies within a specified time. Once that deadline hits, the bets are ranked and the winner takes home the pooled ETH.
Without wishing to belittle the project and the backend work allowing it to function, it is a wonderfully easy idea to understand, being essentially a horse race for cryptocurrencies. But it also fills several niche propositions that could make it very popular.
For starters, depending on your country of residence it may make sense for tax purposes to gamble on the price of crypto rather than trade and invest (which can trigger capital gains taxes). For example, in the UK gamblers do not pay tax on their winnings, with the onus rather on the companies and bookmakers themselves. Gambling winnings also do not need to be declared as part of a tax return. With CGT applied at a 40% rate on all profits over £11,300 per year in the UK, this is a significant advantage.
Secondly, it removes the need to buy and hold cryptocurrencies for a short spell. Registering with lots of exchanges, downloading wallets for niche coins – these are often cumbersome and time consuming. It is far easier simply to bet on said coin if you do not wish to hold long term.
Finally, it offers the ability to short a cryptocurrency and to bet big without leverage. Obviously this isn’t a proper short, but it is a way to bet against crypto – a facility I have often wanted and found lacking. Owing to the parimutuel betting method the project adopts, backing an unfancied cryptocurrency could be highly profitable. The winners share the pot between them proportional to the amount they bet, so if you are the only winner you take the whole pot, regardless of how much you bet.
I have often said that the cryptocurrency market is in many ways one giant 24/7 casino. It is impossible to say if Ethorse will be a success, but the idea of it is a great one. I think it is very likely we will start to see more competition from competing projects in this space soon.
I won’t claim too much credit for foreseeing the 5x rise that Ethorse has had thus far, valuing the project at a shy over $20m as of today, since it was a pretty easy one to spot. The important thing is how to value Ethorse moving forward, since projects often tail off after fast starts.
The 5% rake is higher than competing projects (Etheroll, for example, has a 1% house edge which it distributes to holders) and that rake is distributed proportionally to token holders quarterly. This rake is highly attractive to investors, but it also leaves open the possibility that a competitor could undercut the project quite significantly. The team hold 18,750,000 tokens; the other 106,250,000 tokens were sold in the ICO or apportioned for the bounty (making for a total of 125,000,000 tokens).
Some rudimentary figures show that the cryptoasset could be profitable should daily volumes reach a sufficient level. For example, 100,000 tokens (which would cost c. $20,000 as of today) would generate a $1,460 annual dividend on daily volumes of $100,000. Should daily volumes reach $500,000 that would rise to $7,300. If these figures are reached, the token price of HORSE will rise significantly.
Ethorse will struggle to get listed on the largest exchanges owing to its securities like nature, but expect trading on decentralised exchanges to be strong. Competition is sparse, but projects like Etheroll (DICE) offer a cautionary tale – after strong initial trading the project has dipped to 60-70% off its ATH (and a x10 drop on the ETH ratio).
As such, capturing the attention of the market and taking control of it quickly is crucial. The still small team of three promises a full launch in Q1 with a mobile app coming in Q3. Hopefully the team has the capacity to get the product into operation before copycat projects appear. It will be very interesting to see the first dividend payout and learn the daily volumes the project is capturing.