There has been a huge amount of interest in Crypto currencies over the last year with social media, the financial press and many conferences now being dominated by, and focusing on, the lure of Initial Coin Offerings to raise capital.
It is interesting if you look back just one year, the value of Crypto currencies as at 16 October 2016 was just over $12 Billion, compared to today’s valuation of over $174 billion. So, I suppose it is easy to understand why there has been so much hype, a rise of 1350% -
i.e. £10,000 invested last year is now worth £135,000!
Below is a summary of how the ten most valuable Crypto currencies performed over the last year.
% Price rise in last 12 months
Source Coin Market Cap 16/10/16 to 13/10/17
As you can see from the above, if you look at the ten most valuable tokens, this time last year, six of them have out-performed Bitcoin, and some by more than 4 times! Further investigation into this shows us that last year there were only four tokens that were worth more than $100 million — now there are over sixty!
However, can you buy and sell them? Well, in the last 24 hours 16 tokens had over $10 million worth of transactions i.e. people buying and selling, while Bitcoin had over $900 million worth of transactions — which means these tokens are becoming more and more liquid therefore tradeable.
But I can hear you say — so what?
Well, ICOs have raised nearly $2 billion in 2017, and there is now a token for almost every industry — one has a choice of well over 1,000 tokens to select from. Tokens have become a New Asset class, compared to equities, property, commodities and bonds, and unlike Fiat currencies — Euro, $, £ etc (which seem to have unlimited supply by turning on the printing presses and indulging in Quantitative Easing). Many have suggested that Tokens are “democratising capitalism” by enabling smaller investors exposure to a “tech start-ups” which have historically been dominated by Private Equity, Venture Capitalists, Bankers and High Net Worth investors. However, these New Assets are also evolving and maturing!
If one endeavors to stand back from the brouhaha of ICOs and the plethora of Whitepapers that appear daily — mainly from incredibly technically astute and hopeful entrepreneurs, as opposed to scammers and fraudsters.
What is intriguing is that Blockchain was designed to offer the ability to preserve anonymity i.e. to be able to transfer value, to be able to buy and sell goods with someone whom you did not know — securely and privately. However, many organisations which are now using Blockchain, are starting to function in a very different manner.
If we consider at two extremes, on the one hand is an MI6 agent, let’s call him James, James Bond, who operates under cover. No-one knows what he is doing. On the other hand we have a public company, like Apple, the most valuable company in the world. Clearly apart from “M”, no-one knows much about Mr. Bond. However, Apple is constantly in the press, giving updates on its directors’ share dealings, new products, financial results — to name just a few.
Many people who are looking to do an ICO, think that all they need to do is to raise some capital and then their job is over — apart from building the business — and hopefully their token will “zoom up” in price and make everyone happy. Companies using Blockchain, where confidentiality and military grade crypto graphic security are at their core, and yet instead of having the persona of James Bond, they are increasingly reaslising they need to become like Apple i.e. a quoted company. So a private company with token holders who have no rights unlike shareholders who own their companies are metamorphosing and becoming less opaque. So it could be argued that ICOs are creating organisations that are more open and transparent, than the majority of private companies who have little incentive to act in this manner.
For those budding entrepreneurs looking to do an ICO, you need to ensure that you have a strategy for your post ICO activities — i.e. what token information services are you going to provide? The more data you can get into the public domain, the greater the likelihood is that you will be able to attract more potential buyers of your token, and so hopefully boost the price. Having a regular flow of news, updates and an active forums like slack,Telegram etc serves to help reduce the uncertainty of how the organisation, which has issued the token, is progressing. This, coupled with a rising number of token holders, ought to help reduce the volatility of the actual token’s price.
So, in effect, token holders are being treated like public company shareholders, in that there is a vested interest for the management to be open, and keep token holders abreast of developments. If not, holders may sell their tokens and this could cause the price to fall. This in turn means, by using Blockchain to enable their client’s data to be kept secure — like James Bond — these organisations, which have issued tokens, are having to change. Companies that have issued tokens are realizing the benefits of becoming more transparent, open and communicative, similar to a fully quoted company. So, one wonders, what will the regulators make of this?
But that is for another time……