As Bitcoin Surges Initial Coin Offerings (ICOs) Provide New Funding Avenue
You will be hard-pressed to read any major news publication and not see a headline featuring Bitcoin over the last several months. The infusion of Bitcoin into the mass market is starting with the listing of a Bitcoin futures investment product by the CBOE, Chicago Board Options Exchange which is the largest US options exchange and a second Bitcoin futures option from CME Group expected to launch in about a week. For those that have not been around the cryptocurrency ecosphere, this may sound like a foreign language, but this puts cryptocurrencies at the center of many water cooler conversations including the meteoric rise of the Initial Coin Offering in 2017.
Initial Coin Offering s known as ICOs have disrupted the traditional VC or angel investing market in 2017, according to Coinschedule 234 ICOs have raised over $3.6 billion in funding. So what is an ICO? An ICO is a funding mechanism for blockchain based companies to raise capital by selling their underlying tokens to be used inside their blockchain ecosystem or eventually traded on open exchanges. This is different from an IPO in that in an ICO the organization does not trade equity in the company for funds. The investors have more liquidity as well because once the token event happens at the end of the ICO and the investor is issued their tokens they can freely exchange or sell them. Generally, as a seed investor, you need to wait years for a company to become IPO viable or have private equity come in and buy you out. The ICO condenses cycle times for investing as well as raising funds to further the organization’s blockchain project.
So what types of companies are using ICOs to drive disruptive change within industries?
Sparkle Coin, currently in an ICO is looking to disrupt the ecommerce industry to allow mass adoption of cryptocurrency payments. They recently created a technology that allows people to use cryptocurrencies like Bitcoin, Ether, Litecoin and their Sparkle Coin to purchase goods online with major retailers like Amazon seamlessly, Walmart, Best Buy, etc. through their VCoin Mall. In the current model, it is very difficult for existing organizations to accept cryptocurrency to transact in the traditional retail space. A primary reason for lack of adoption is market volatility to receive the fiat base price(ex $USD). The value of Sparke Coin is in direct proportion to the volume of sales in the VCoinMall, so if you own Sparkle Coin when it opens, it will appreciate in value the more you buy using it, and everyone else.
Another company that is starting their ICO in 2018 is Uulala, they are building a blockchain based financial services suite to disrupt the remittance industry. The global remittance industry topped $429 Billion in 2016. The World Bank says transaction fees average 7.45% globally, and, in many remittance corridors, they are a lot higher driving rates as high as 15%. Blockchain-based fintech companies like Uulala are leveraging the technology to drive consumer fees down and created a decentralized community to load funds, which will significantly impact existing intermediaries like Western Union, and MoneyGram in the Latin American remittance corridor.
Initial Coin Offerings are seeping into every industry as the new goto funding mechanism for startups to accomplish two major things, first, gain access to capital to facilitate their blockchain based project as well as build a community of early adopters once their offering is complete. Investors look to reap the rewards as over 35 ICOs have provided returns above 1000% according to ICO Stats. These returns have not gone unnoticed by regulatory bodies around the globe with the SEC creating a cyber task force to rude out scams posing as ICOs. The SEC Chairman released positive outlook in a statement this week “We at the SEC are committed to promoting capital formation. The technology on which cryptocurrencies and ICOs are based may prove to be disruptive, transformative and efficiency enhancing. I am confident that developments in fintech will help facilitate capital formation and provide promising investment opportunities for institutional and Main Street investors alike. ”
As cryptocurrency markets continue to flourish and change, as blockchain based companies look to drive efficiencies with opensource technology and inclusion it would be wise to educate yourself on the Internet of Value.