Note: This article is from 2017.

At first glance, the idea of people investing in ICOs is bizarre. Many are a whitepaper and a team asking for a large sum. Yet, it's clear to a casual observer that something is going on. In August 2017, industry watchers put ICOs ahead of early-stage investing.

One lens that helps unpack the ICO phenomenon is to look at the some of the major investors driving it.

There is a lot of speculative value sitting in Bitcoin and Ethereum. Even with high volatility, the lower bound is still a big number. If you ignore liquidity constraints, it's between $50 and 100 Billion USD. One of the fundamentals of markets is that value needs to go to work. In a healthy market, the value will flow to investments.

Right now, there are a lot of people sitting on a considerable Bitcoin value. Many of these people have a speculative mindset. The simplest demonstration of that is it's likely they were in Bitcoin early. These individuals and groups are early-adopters at heart and rewarded for it.

Part of the driving force of ICOs is the mentality of these investors. They are much less inclined to convert their Bitcoin to fiat currency. In some cases, this will be because of structural reasons. It could be of a distrust of fiat currencies. Whatever the motivation, they're going to be fans of blockchain.

When you put that ICO token next to Bitcoin, you normalize out a lot of that speculation. Bitcoin was already speculative to start with.

There is also another key investor in ICOs. That's existing Venture Capitalists. If you describe and ICO as a team with a dream and an idea, that's the bread and butter of early-stage investing.

VCs are effectively underwriting many of the most successful ICOs. They buy in up-front and provide both technical and social validation. Someone with deep pockets is invested in the token's success, providing some form of safety net. The record-breaking Filecoin is an example. Filecoin pre-sold $52 Million from top-brand VCs, Union Square Ventures (USV) and Sequoia.

This comparison to VCs has some utility. A Bitcoin investor may feel like an early investor in a tech giant. Once that investment pays off you've got the next round. You can either continue to hold on to your Google shares, or cash some out and invest elsewhere. This "next wave" sentiment similarly applies to those that feel they missed out on Bitcoin.

Fred Wilson of USV and AVC fame spoke a little of the comparison between ICOs and traditional private investment in his blog post, Buyer Beware. If you're considering ICOs it's worth reading widely, and his blog is a good place to start.

In many ways, the ICO market is giving a broader access to a market usually reserved for venture capital. AngelList was already opening some doors, but structural barriers remain.

While ICOs might appear extremely speculative, it's a market dynamic that is feeding off $50-100 Billion of speculation. This is not a validation of many of the ICOs out there. Speculation remains just that. It's simply a lot of fuel to fire.

In many ways, the emergence of the ICO is a necessary "release valve" for Bitcoin. By itself, it can only go up and down. It gets boxed in with traditional markets. With the ICO market, it can go as many directions as you can imagine.