The spectacular crypto-crash of 2018 was just a blip in the unstoppable march of the “crypto company”
An ICO or Initial Coin Offering is a new way of raising funds for a business. Rather than a traditional IPO where companies offer shares in their business via a stock market listing; an ICO offers investors tokens instead of shares.
This means the investor is not a shareholder; instead they own tokens. The tokens can be sold or exchanged on cryptocurrency exchanges.
One of the main problems with the ICO market in 2016 and especially in 2017 is many of them were scams. People were not doing the correct level of due diligence and research and they were rushing in; not wanting to miss out on the next big thing.
The quality and experience of the management teams in many cases were pretty bad and the concepts were not well thought out and lacked proper business acumen. Thankfully, towards the beginning of 2018 and into the summer we saw a marked improvement in the quality of ICO projects.
It is worth noting that the market crashed for many reasons and it wasn’t solely down to the ICO market. To give you a flavour, the price of bitcoin in 2017 had skyrocketed from only $877 (680) on 15th January 2017 to over $17,000 (£13,100) on 17th December 2017. That’s a return of over 1,900 percent in less than 12 months!
2018 was the most successful year for ICOs. However, that’s not saying much as it’s really only the third year of raising money via ICOs.
At a recent event, the Crypto Challenge Forum in London in October, many of those active in the industry were suggesting the best option for funding new blockchain and DLT projects is as an STO – Security Token Offering. But we are yet to see how the decentralised exchanges are going to help with liquidity. In addition, STOs will be much stricter and potentially more onerous to issuers and not open to the general public.
“I wouldn’t be surprised if we see more mainstream and traditional businesses begin to look into how they can leverage an ICO as a new and exciting way to raise funds”
One of the huge benefits, of course, is community. Community is a buzzword often heard with regards to an ICO, but actually it’s important for any project to have a vibrant community. Utility tokens used within a project need a community and it’s this community which will do a lot of the buying and selling on exchanges. Without the community and mass adoption on a security token, where will the secondary market come from?
Why ICOs are here to stay
I think ICOs are here to stay and I wouldn’t be surprised if we see more mainstream and traditional businesses begin to look into how they can leverage an ICO as a new and exciting way to raise funds, whether that be for a start-up or for an expansion business.
We will need regulation for this to happen – and by that I don’t mean heavy-handed regulation. I’ve been really impressed with how Malta have approached regulation and the new VFA class (Virtual Financial Asset).
On the whole, regulators across all global jurisdictions seem to be playing a careful game and seem to be saying they don’t want to stifle innovation. This can only be a good thing.
The case for cryptocurrencies
Many hold the view that ICO tokens are cryptocurrencies, but I don’t like calling them cryptocurrencies. I think most of them actually represent “crypto companies”: companies which have raised money in exchange for tokens, in order to use the capital to develop, build and grow their business.
For me, crypto company use cases should be focused on solving a real-world problem and the business should have an experienced management team at the helm.
Switching back to actual cryptocurrencies – I still like bitcoin and unlike many; I also like bitcoin cash. Bitcoin, because it has the brand right now and it’s the first place people will come as they enter the crypto space for the first time.
“Without the community and mass adoption on a security token, where will the secondary market come from?”
Crystalising the crypto-vision
I think some of the current crypto stakeholders have got burnt and are now much warier, and they are now carrying out proper due diligence.
I’d like to see more mainstream, traditional investors, such as family offices and investment funds begin to invest in ICOs and STOs and I think we’ll see more of this in 2019.
I get invited to some select, VIP investor events and towards the end of this year, we’ve begun to see family offices opening up to the idea of investing in good quality ICOs with experienced senior management teams and businesses which solve a real market problem.
Regulation is coming and I think 2019 will be year we begin to see more adoption, but as I’ve said: it all hinges on more regulation.
The financial world is still sat on the sidelines. We are currently waiting for the decision on the different crypto ETFs. If they finally get the go-ahead then this will be the first chance for institutional investors to properly invest in bitcoin and other crypto companies.
The market cap of gold was sitting around $7 trillion in 2017, and the whole market cap of the cryptocurrency market is $212 billion as of 12th November 2018. People use the market cap of gold as an example of how much money there is out there; some of which could come over to bitcoin and other cryptos, when mass adoption begins.