Have ICOs reached the end of the road?

In 2017, Initial Coin Offering (ICO) was probably one of the biggest buzzwords in the fintech and other blockchain-based sectors. There were ICO calendars, journalists tracked how various ICOs were doing and reported on the final amount raised, looking for the ICO that would break all ICO records. However, the negative reaction of media giants like Facebook and Google to the ICO sphere had the effect of making it more difficult for those fledgling businesses holding ICOs to market their offering, and ultimately could be said to be responsible for dampening enthusiasm for this new form of crowdfunding.

Then 2018 brought with it a change in wind direction: the cryptocurrency market started to behave in a way that disappointed the small investor. Institutional investors were still apparently wary of the entire ecosystem, regulatory bodies debated how to handle it, and on top of that, the word ‘ICO’ became almost toxic thanks to the social media rulings on promoting them. Instead, people started to look for ways around it, calling them ‘token sales’ and talking about ‘digital assets’ rather than cryptocurrency. And, lets be honest, the glamour and excitement associated with ICOs in 2017 was beginning to wear a bit thin.

This is not something I made up: data from Crunchbase published this summer and in the Q3 of 2018 shows that there has been a massive decline in ICO fundraising. A report from ICORATING reveals, “a total of just over $1.8 billion was raised by a total of 597 ICO projects in Q3 2018, down significantly from the over $8.3 billion that was raised in Q2 2018.”

America’s SEC is also responsible for some of the problems faced by ICOs; its scrutiny has made the country a cold place for the blockchain-based startups. And America isn’t the only jurisdiction presenting barriers for the sector.

ICOs aren’t dead; they’re being reborn

The fact that ICOs seem to be declining in terms of the funds raised this year doesn’t mean that funding is not coming in for new blockchain businesses. Instead, what is happening is that the environment is simply changing: ICOs may no longer be the fashion, but there is an increase in crypto funds coming from venture capital sources. What we are going to see are better funding solutions in a different format.

The point I really want to make is this: just because there is a decline in ICO activity, don’t take this as a sign that cryptocurrencies, tokens and blockchain technology have also had their day. This is a new market where various roles and functions are constantly evolving, and there’s nothing surprising about that as history shows us.

NYSE head backs digital currency survival

Good news for cryptocurrency supporters from the New York Stock Exchange (NYSE) chairman, Jeffrey Sprecher. This week he expressed his optimism about the survival of digital currencies as an asset class, according to one business news outlet.

Sprecher, who also happens to be CEO of Intercontinental Exchange (ICE) was speaking at the Consensus Invest conference. He told the audience about how he reacts to press headlines like “Will digital assets survive?” and said that his unequivocal answer is yes. However,, when it comes to price he suggested that the NYSE was “agnostic” about that, meaning that it has no bias about what might happen as regards that.

Coincidentally, and rather tellingly, Sprecher was joined on stage at the conference by his wife, Kelly Loeffler, who happens to be the CEO of Bakkt, a cryptocurrency platform. Bakkt also happens to be owned by ICE and will launch next year.

Loeffler talked about what Bakkt will be offering, including the Bitcoin futures contract, saying, ““the Bakkt futures contract will help Bitcoin traders establish a trusted price. Bitcoin now trades at different prices on different exchanges, many of which are unregulated.”

Indeed, the NYSE and its parent company have been quite proactive in the digital currency sphere, which is encouraging for others involved in it. ICE has already partnered with Blockstream, a blockchain tech company to provide the big Wall Street investors, including hedge funds, with what it calls “disciplined” BTC pricing. To do this, it said it would pull data from 15 major exchanges.

A few months after this, ICE then said it would offer traders contracts that would result in customers owning Bitcoin. At the time it said, “ICE has had conversations with other financial institutions about setting up a new operation through which banks can buy a contract, known as a swap, that will end with the customer owning Bitcoin the next day — with the backing and security of the exchange.”

And at the same time as this Sprecher has made a supportive statement on cryptocurrency, it has been announced that an Association for Digital Asset Management (ADAM) has been created to produce a “code of conduct” for the digital currency sector. Among ADAM’s founding members are the former NYSE CEO, Duncan Niederauer, Galaxy Digital, a crypto merchant bank, BTIG, a global financial services firm, fintech firm Paxos and GSR, a crypto liquidity solutions provider.

Even if the markets are struggling to find their level, it seems apparent that slowly but surely the financial world is coming around to the idea that cryptocurrencies are here to stay.

What’s the real value of China’s blockchain projects?

Although you may think that everything is equal on the blockchain, you’d be wrong. For example, there is a huge difference between the ways blockchain projects are valued in China compared with western countries.

David Li of Trinity explained why: “For the Chinese who are working on blockchain projects, the price of the underlying project means nothing to them — since they can’t own it. They are focused solely on the tech.”

As a result, trading in Chinese Yuan to bitcoin only amounts to 0.79% of the daily trade volume. That is pretty low for a country the size of China, but then its citizens have not had a way to directly trade Yuan to BTC since December 2013, and the impact is clear to see.

2013 was the year that mainland China stopped the traditional financial institutions from trading in bitcoin, but here’s an interesting fact; when the Chinese public was able to directly buy BTC the total crypto market cap rose by 881% in six months. And over the five years when they have not been able to participate directly, the market cap has risen by 1310%.

There is also something else to consider; the project that constitute the crypto market today are very different to five years ago. Also, the total market cap in 2013 was $15.7 billion, whereas in 2018 it is around $221 billion.

Radigan Carter also points out in one of a series of article on medium about the Chinese blockchain market: “just the four Chinese projects below in today’s Top 25 by market cap would have equaled 44% of the entire market capitalization of all blockchain projects in 2013.” Those projects are Tron, NEO, Binance and Vechain. Significantly for these projects most of their valuation comes from western investors, since Chinese people can’t put money into them, not even the people working on these projects are able to own any of the company they work for.

There are some questions to be asked about the Chinese market. First, since no Chinese citizens can buy into any projects, are the current valuations accurate? Second, would China want a more accurate valuation before it allows its people to buy into Chinese projects, and third, is it possible to establish the level of western institutional involvement in the Chinese blockchain market?

Nouriel Roubini’s Project Crypto Fear

There have been some voices in the banking community that are determined to undermine the legitimacy of cryptocurrencies; Jamie Dimon is one, but the loudest voice is that of Nouriel Roubini. This American economist, who made his name on the back of accurately predicting the global financial crisis of 2008 has been making sure that US government senators listen to his dire warnings about digital assets if they are adopted.

Roubini claims that crypto is all about greed; for him there is no case for democracy and decentralisation according to him. His actual words were: “Crypto is the mother or father of all scams and bubbles.” That is what he told the US Senate Committee on Banking, Housing and Community Affairs.

His criticism of the industry is founded in some truth. Yes, there have been scams and some crypto assets will turn out to be worthless, but not all. Still, since when has everybody unilaterally agreed about everything? There is a point to debating the case, because it enables us to come to a clearer conclusion about the potential of the new technology.

Roubini is also an economist who likes to shout pretty loudly about it all being a ‘bubble’. Of course, he wasn’t alone in going on about the Dutch tulip fever of several hundred years ago. He said the bubble would burst, and some might think it has, because in 2018 the market hasn’t lived up to the hype of 2017. But what is happening now isn’t necessarily a bubble bursting; in the future we may look back and see that it was more a case of the market finding its own level before moving forward again. And, Roubini has ignored the potential of stablecoins, which could protect us from the kind of crash we experienced in 2008.

The mainstream media has supported Nouriel Roubini’s view. Crypto sceptics are more regularly interviewed than crypto supporters, and these anti-crypto talking heads fan the flames of the anti-crypto propaganda. But they may have egg on their face when crypto ETFs make their debut.

Roubini told CNBC, which gives him a lot of air time: “Folks with zero financial literacy — individuals who could not tell the difference between stocks and bonds — went into a literal manic frenzy of Bitcoin and Crypto buying.” Well, yes, because not everyone can invest in Wall Street! But this doesn’t make it a scam, or a bubble, or something to be feared.

Give crypto, blockchain and all the attendant new tech tools, such as AI, a chance, because it might deliver something unexpectedly good.