KIK’S ICO KIN:
I spent most of the day trying to figure out why there was so much hype surrounding KIN. For starters, the demographics don’t line up between Kik users and BTC users (which I think correlates to crypto-traders in general). There’s more on that down in the optional DEMOGRAPHICS section. Most people use other apps anyway: Facebook Messenger; WhatsApp (user base of 1 billion1); WeChat (877 million user base2, 768 million daily active users3)—Kik Messenger has a userbase of over 300 million4, but only 15 million of those are active monthly. The hype won’t last. There are a few nice things about Kik, but this ICO is not one of them. You may be able to make a little bit of money right at the start, but this is not one to hold onto long-term.
LET’S PLAY PRETEND
Let’s pretend this isn’t Kik’s ICO. Let’s pretend it’s WhatsApp’s ICO. (They haven’t announced one yet, this is just pretend.) In 2014, Facebook bought them for $19 billion. This is an absolutely insane amount by financial metrics. (At the time, they employed 52 people and took in about $50 mil annually5). But Facebook is playing the long game. First, look at WhatsApp’s growth. In the first four years, WhatsApp (WA) gained 419 million generally-active users. WA has been a major success because it’s not a rival to other messaging apps, it’s a rival to SMS.6 In the U.S. SMS is virtually free. You pay a modest fee for unlimited texting—at least, millions of people do this. Not so in Europe. SMS are, for example, €0.15 a piece in Spain. So naturally people turn to messaging apps that use Wi-Fi (or data) which are, after the cost of Wi-Fi which they’re probably already paying, or can get around town for free, free messages. That’s a big deal when your alternative is about $0.15 per text. Facebook knows this, and is hoping WA can fill in the global gaps. They’ve had trouble gaining traction in areas that WA is booming in. According to Zuck, “Once we get to being a service that has a billion, two billion, three billion people one day, there are many clear ways we can monetize.” Yeah he said that. Menacing, huh? Besides that, Facebook wants to cut out the competition. Large scale networks like WA are rare and provide significant monetization opportunity, justifying their valuation over time. So if WA were releasing coins, I would definitely be optimistic. We’ve already had a major U.S. player spend serious money on it. Long-term the value of any stock will go up. Especially if it becomes monetized and issues its own cryptocurrency, I think the investment value in stocks and WA currency would be high.
But this isn’t WhatsApp. It’s Kik. Let’s look at the difference.
First, Kik is not worth $19 billion. Kik is worth $1 billion. That may seem like small potatoes, even compared to Snapchat, who turned down an offer from Facebook for $3 billion. But being a private tech company with a valuation of at least $1 billion is a big deal, and puts them in the same club as about 120 other companies7. And, their userbase increased at an impressive rate, from 0 to ~150 million in the first four years. WA was 419 million, Facebook was 145 million (roughly the same as Kik), Twitter was 54 million8. Obviously not as impressive as WA, and might allow for optimism, but there are other things to consider.
SOME ENCOURAGING STUFF THAT WILL DISTRACT YOU FROM THE TRUTH
The only comparatively cool thing about their valuation is that their previous round of funding brought them $50 million from Tencent, which is a Chinese company that owns WeChat. That’s both surprising and encouraging. Kik hopes to replicate the success of Weixin (the actual Chinese version of WeChat that already facilitates e-commerce extremely well), and the fact that WeChat is investing in them could be a sign that they’re on the right track. They already tested their own “Kik Points” system, too, and it did well, with points being traded an average of 300,000 times per day, more than three times the average number of transactions per month on the BTC network—this is in 2014.9 (Though lots of stocks have a very high trading volume and low price movement.) From this, one might get the impression that the hype is justified, and the currency will perform well.
And boy oh boy, is there hype.
ICOWatchlist.com says whale investors will scoop up the majority of coins and the value of the tokens will “likely see a quick appreciation as a result.10” Bloomberg Tech says that Kik Interactive is “about to get its biggest cash infusion yet…from regular people,” and, quoting a venture partner of KIN, “This is a seminal moment for the industry.11” Fortune.com is a little more reserved, but says that KIN will bring in “a substantial sum no matter what.12” Reuters first reported on the ICO in May,13 and then in August.14 Both times they were very even-handed, but they are adding to the noise. People read this then they google around and find the Bloomberg article and there you have it—hype.
THE TRUE DISMALITY OF IT ALL
Good heavens, where do I even start. There is so much.
First, Kik is trying to raise $125 million. ShocKINgly, they’ve already raised $50 mil of that $125 mil from leading crypto investment firms Polychain Capital, Pantera Capital and Blockchain Capital.15 You might be saying, Polychain? Haven’t they made millions from ICOs? Yes they have. They make bets on companies whose tokens are relevant to their respective model:
“If your token really doesn’t interact with your business that token isn’t part of what you’re building. You’re building a business. You’re using tokens to raise money but you could use something else.16” – Carlson-Wee, founder of Polychain Capital.
On its face, this might make some people optimistic for the ICO, and indeed I think there will be a short initial spike as large investors buy in early effectively pumping up the market.
(And, Joey Krug, Pantera Capital’s co-chief investment officer, might be right when he says that users may be incentivized by the prospect of getting KIN for their viral content,17 but let’s all remember what happened to Facebook Credits? In 2013 when Facebook shuttered its Credits program, the social network already had monthly active users of almost 875 million people. That’s ~1650% more than Kik currently has.18 Oh and it was a failure, so there’s that.)
But Kik’s userbase is shrinKINg. Their growth has stagnated, and of their 300 million “users,” only 15 million are active. Their coins matter directly to their business, just like Red Pulse / RPX, but in this case, nobody wants the existing business…so why would they want the same business plus crypto? It doesn’t make sense. Their business model isn’t really profitable anyway19, so why anyone would expect any KINd of long-term high-growth is beyond me. Even in their Whitepaper, they excuse themselves of having to have a relevant revenue model: “As a company, Kik has been searching for a sustainable monetization model that does not compromise user experience or privacy.20” Yeah. They really, actually, truly do not know how they are going to make money. Fuck, even Zuck said that WA is not profitable now but once it gets to a billion, 2 billion, 3 billion, there are ways to monetize. Kik doesn’t even have 100 million active users (1/30th). They don’t even have 50 million active users (1/60th). They don’t even have 20 million active users (1/150th).
On top of that, they want $75 million from 1 trillion tokens. If they were a company in high demand, I might be able to see that. If WA was looKINg for $125 mil, I might be skeptical (given that such funding, if received, would make KIN one of the highest-charting ICOs ever21) but I would understand. But Kik isn’t expanding. They’re stagnating. According to their CEO
Ted Livingston, who looks like a corn-dog fucked a gordita, they’re not growing.22 Even that Bloomberg Tech hype-article admitted that the company has been struggling to compete in the messaging world.23 And, the app slowdown may be across all apps, but it’s hurting Kik a lot more, with 5% of their users active compared to 88% of WeChat.
And oh, yeah: that 1 trillion? That’s only 10% of the entire number of tokens. The “Kik Foundation” is keeping the rest. What are they going to do with it? They’re going to add KIN to the market (via Developers) every quarter, causing the value of the currency to fall every single time. Every quarter, you can bet on the coin value dropping (an inverse spike) and then maybe going back up. Kik is absolutely oblivious to this. In their whitepaper of all places they say that it’s “non-inflationary,” yet shortly after admit that “only a small portion of the KIN supply will become liquid in the near future, as most of the KIN supply is reserved for the KIN Rewards Engine.” Go home, KIN, you’re drunk.
As for being the new WeChat (or as their CEO has said, the “WeChat of the West”), I don’t see it happening. The reason why is obvious. Does anybody see this happening with Kik?
“In China, consumers use Weixin not only to connect with friends, but also to facilitate numerous other experiences, including booKINg taxis, shopping, ordering food deliveries, paying utility bills, playing games, and following celebrities, opinion leaders, and brands via “Official Accounts.” Kik has similar aspirations to build a chat-based ecosystem around its stronghold of American youth. 70% of Kik’s 240 million registered users are aged between 13 and 24 years old. Approximately 40 percent of U.S. teens use Kik.”24
Messaging is definitely the preferred form of communication of the largest consumer group on the planet. 41% of Millennials say that they would be “truly satisfied” if they could use messaging or SMS to connect with companies and organizations where they do business.25 It’s starting to happen on Facebook, but it’s been somewhat slow-going. I don’t see any reason why it should suddenly explode with Kik, especially given how small their market share and active user base are.
The only real hope I have for this coin is that, if it gets added to other exchanges or becomes useful anywhere outside of Kik, the price will rise a little. But that’s not in their whitepaper; their vision is all digitized. What a weak answer to a big opportunity.
WHAT SOME OTHER SMART PEOPLE ARE SAYING
“Great idea. Maybe it will make the platform huge. The trouble is, for this vision to work, the platform has to become huge. If a split minority of chat users are on Kik as opposed
to the myriad of other options, then the actual utility and value of a KIN token are not going to be exponential, it’s going to have a cliff at best.26”
Actually, the whole article is okay. It’s behind a paywall though so if you want it DM me and I’ll send you a PDF. One more quote from them:
Hype bubbles are carried purely on the steam of those who stand to gain from them, so after a time, that steam will dissipate, and downward pressure will latch onto the token like an octopus. As such, if you’re going to go in on KIN tokens, get out while they’re still actually liquid.”
“The pre-mining and centralization might turn off the experienced crypto trader. But for the average consumer who has only heard bitcoin in passing, this may be of no concern for them. This could be an introduction of a very large an untapped demographic into the crypto economies.”27
WHAT’S GOING TO HAPPEN TO THE MARKET
First, the coin will rise. The hype will be a short-term self-fulfilling prophecy. I think it will look like the first 16 days of EOS.28 But the hype won’t last. KIN will trade consistently lower and look like the first 38 days of Bancor (BNT).29 Then, once it starts to become usable on Kik, we’ll see a spike, and it’ll look like the YTD of Status (SNT).30 There will be some modest appreciation afterwards, as the velocity of the currency is related to its value, and if that velocity increases, the value will increase as well. However, this is assuming a stable monetary supply…which unfortunately is not the case. Every quarter, once Kik pumps up the money (coin) supply, the velocity of money won’t matter as much—a relative increase in the monetary supply that is universal will cause inflation, and therefore the value of the coin will drop. Pull up that SNT chart again. It’s going to be upside down and backwards every quarter for at least two and a half years.
Who uses Kik? About 29% of smartphone owners use general-purpose messaging apps such as WhatsApp or Kik31. And we already know that 40 percent of U.S. teens use Kik. But I don’t see much overlap between Kik and BTC users.
CoinDesk did a survey with nearly 4,000 responders in 2015. They came up with this regarding BTC:32
With regards to race, 65.8% of respondents in the survey identified as White. Second came Asian. (Something to note: three quarters of respondents said they got into BTC after May 2013, and one third began using BTC in the last year.) Fast forward to July 2016, and bitcoinx.io did a survey of its own (next page).33
The important stuff: the age distribution is about the same. Gender distribution is no surprise. Continent is unexpected, though. CoinDesk had less responses to their Chinese survey than they anticipated given the number of users from other studies, but this looks okay.
And lastly, I found this very interesting: according to a Verto Analytics study, there’s a correlation between yearly income and social media/messaging preferences (next page).34
“The amount of yearly income a person makes has some influence on the social media property they use. Pinterest and LinkedIn are popular among the $50-75K annual income bracket. This income group is most likely to use Facebook Messenger and Snapchat for messaging, and Instagram, Facebook, and Twitter for sharing images, videos, and news. Higher earners in the $100-150K income bracket, also use the same services. Both Pinterest and LinkedIn have more business focus, which could explain their popularity among people who are higher earners. Flickr is most popular amongst earners in the $40-50K and $75-100K income brackets, while Periscope is popular with earners in the under $15K and $30-40K income brackets. Kik’s popularity among younger generations and their parents, is clearly visible in the income chart.”
KIK’S ICO KIN: