In this infographic, we discuss the pressing question about the long-term value of the ICO bubble
Greed is good, so said Gordon Gekko; And with the ICO trend, many tech barriers exist yet, but the concentration of brains and capital means the community can solve everything
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Blockchain accounts today to only 2% of the whole fintech industry, but the ICO (initial coin offering) trend seems like an amusing innovation of the market. It is a mix of IPO (selling of company’s stock but for cryptocurrency instead of “standard” money), crowdfunding and p2b-lending. The total amount raised during ICOs in 2016 is around $250 million and … already more than $1.8B “helicopter money” in 2017! I want to share several slides from the new presentation* by ITO.SG platform.
Like in the late 1990s, the dotcom era. Angel investors and venture capitalists bought stakes in dotcom companies for a few cents before they went public, unloaded them for double and triple digit dollars the day these companies made their debut on Wall Street. We all know what happened in that case. One more question: how all of these post-ICO companies will (convert and) spend their “millions” (of nothing)? Still, we’re past the tulip stage. Yes, that first dot-com bubble was ridiculous, but it also gave us enduring companies like Amazon, Google and eBay. And, yes, scores of foolish day traders and IPO junkies got crushed, but lots of smart, early players got very, very rich. That history is repeating right now, too.
Jamie Burke, the founder and CEO of blockchain-focussed VC firm Outlier Ventures, calls ICOs “the blockchain ecosystem’s killer app.” The way Burke sees it, ICOs are finally lowering the barriers to entry for technology investment, as whoever has some cryptocurrency can join the party; more than that, coins’ speculative potential is allowing open-source projects to raise more funds than ever before. “The point is that now, for the first time ever, open-source initiatives can be profitable for investors,” he says. “Previously, they were relying upon donations and they were inherently unprofitable — people would just do them for an ethical goal. Now there is a financial incentive for people to participate.” “Most of the projects which have launched ICOs are poorly designed and won’t scale,” he says. “But I look past that: I still think we have the ability to kick-start this new economy.”
Most of blockchain companies have technologies but they don’t have financial and business results. It was a real nightmare to raise traditional VC money and now with ICOs they can raise money cost effectively. On the demand side there was a real lack of capital available for blockchain.
Also read: Do Initial Coin Offerings represent the inevitable disruption of Venture Capital?
The liquidity for cryptocurrencies is not high but with ICOs people were able to readily convert these currencies to services and goods and even stocks in start-ups. It is like ‘helicopter money’ for these companies and it also allows investors to diversify into cryptocurrency assets. In addition, there is a speculative mood in the industry where people are looking for high returns in short term from these ICOs.
Right now it seems like a ‘bubble’ story, not unlike Dotcom era, but this is also an evolutionary phase. Many small companies will die but the ones that will survive will be strong and will be infrastructure based solution rather than end user solution. We expect 5-10 % companies to survive and these will change the industry and become the future leaders like Amazon.
I expect the industry to become a more viable and regulated instrument over time. ICO as a tool has lots of advantages like security and liquidity that it brings to venture capital players but lots of people will be disappointed with the unprofessional investments made in ICO without proper business evaluations. I expect the market to mature, become more transparent as mature players like VC come into the market. These funds will be regulatory compliant and will filter companies that has no potential or reason for investment. There will be new infrastructure platforms that will provide technology to host ICO for preliminary due diligence.
It’s the Wild West, it’s very much early days still. People are getting overloaded with offers and the quality of the companies is going down. We expect to see some cooling down in ICOs in autumn this year and the future will see more professional players such as big funds, institutional investors and technology platform enter the market. Renaissance will come next year (2018) when we expect to see lot of regulatory changes and the professional capital enter the market which will bring stability.
In one and half year from today potentially we will have companies that will go out of market – companies that would have already spent all the money raised, unprofessional investment will not be successful. Founders of the companies will then be more mature and investors will be sophisticated with the pockets to invest several hundred million dollars in cryptocurrencies.
The most interesting (and perspective) blockchain-related spheres for ICOs are strictly outside of the cryptocurrencies’ realm – they include solutions for healthcare and logistics industries, land sale support, governmental and corporate workflow solutions.
Estonia, a global leader in e-government, has recently launched a unified medical record database, accessible to hospitals and insurance companies, in partnership with the blockchain startup Guardtime. Prescrypt works along the same lines in partnership with SNS Bank and Deloitte in the Netherlands, BitHealth – in the United States. Swedish government together with ChromaWay and a partner bank is going to test blockchain smart contracts for a land registry, which are to simplify the life of buyers, sellers, and banks, using land as a collateral on regular basis.
BitFury launches a similar initiative in Georgia, whereas BitLand enters Ghana and Honduras (and have plans to expand to Nigeria and Kenia). UAE launches Blockchain strategy to become paperless by 2020. The state of Delaware, hosting numerous companies from other states and countries, is to introduce a blockchain-based system of company registration, an issue of shares, recording of Board Resolutions, redistribution of shares as a result of purchase and sales transactions (Singaporean Otonomos is developing a similar solution for a number of countries).
British Everledger assists banks, insurers and open marketplaces in a reduction of risk and fraud by digitally certifying diamonds, art objects and high-end bottles of wine.
My colleague Elena Masolova wrote great thoughts regarding this: “The technologies of 1993 have met with the hype of 1999. Many tech barriers exist yet, but the concentration of brains (and now the concentration of capital, as well) makes me believe that the community will solve everything.” “5–10 companies of this autumn will surpass $1B capitalization after crypto exchange listing.” “The best factor. The industry is seeing huge influx of talent and capital. Hundreds of entrepreneurs, coders, investors I know have joined it. Gordon Gekko was right — ’Greed is good’.”
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*Research and analytics made by ITO.SG’s partners Life.SREDA VC and The BB Fund, which they did to evaluate the size and dynamics of the market through a research of all ICOs that publicly happened in 2017 and published information on their web-sties and ICO aggregators. The deeper numbers on rounds by stage, funding by stage, VC investment traction are based on Tracxn research, with predictions from Life’SREDA’s and BB Fund’s add-ons, based on own findings.
Particular company’s profiles are from Dow Jones Private Markets, Datafox and Crunchbase. Data on blockchain industry sectors, top funded business models, Blockchain companies by geography is collected and carefully filtered with permission of Mckinsey & Co team. Data on top blockchain companies and information about their investment rounds, date, stage, amount is collected and carefully filtered from Mattermark and Dow Jones Private Markets. The ICO market analysis numbers are carefully collected and filtered from Smith&Crown researches, Coindesk papers and projections are based on Life’SREDA’s and BB Fund’s market vision.
Information about core evolution points is compiled based on Life.SREDA’s and BB’s qualitative research and subsequent thoughts and purely Life’SREDA’s and BB Fund’s point of view’. Definition of ICO, explanation of ICO’s popularity, ICO’s market problems include information based only of Life.SREDA’s and BB Fund’s knowledge and views and may differ from other sources.
Featured Image Credit: 123RF Stock Photography
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