Why Digital Currency Startups are Ditching IPOs for ICOs
BY: SAM DAVTYAN ON MONDAY, AUGUST 07, 2017
Since 2009, when Satoshi Nakatomo created Bitcoin, the first decentralized crypto currency, the coin market has seen an influx of other crypto currencies. According to Coin Market Cap there are currently 1028 crypto currencies. However, only about 798 of them can boast of a significant market capitalization. This ranges from as low as $130 to as high as $44 billion.
On further study of the market performances of these crypto currencies, only 334 of them have a market capitalization above $1 million. This is just about 32% of the crypto currencies currently in the coin market. It is obvious that most crypto currencies are struggling to keep their head above waters and favorably compete.
The question now is; what can be done about this?
Despite the fact that most crypto currencies are currently underperforming in the coin market, there are indications that more crypto currencies will find their way into the coin market. In fact, Simon de la Rouviere has this to say; "everyone in the next 10 to 20 years will have their own altcoin". As sarcastic as that may sound, the fact that launching a new crypto currency is not as tasking as it used to be cannot be overlooked.
Moving away from whether or not we will have new crypto currencies and whether or not the already existing ones are doing well, the focus of every crypto currency company should be on increasing market capitalization. To do this, investors need to inject funds into the crypto currency project. One effective way to do this is through an Initial Coin Offering (ICO).
Every company that releases a crypto currency, and expect to attract funding from investors, must think of ICO. This is imperative looking at the competition in the market currently and the one that will still come. Needless to say, the coin market is now a red ocean and the competition will not let up anytime soon – or ever. ICOs are the sure way of keeping up with the competition. Asaf Zamir, founder and CTO of ICOs are the sure way of keeping up with the competition. Asaf Zamir, founder and CTO of Cloud With Me, calls it a way to get a slice of “the crypto currency pie for the “rest” of us”
In August 2013, Mastercoin raised over 4700 BTC (which is about $5 million) with their ICO. According to Smith+Crown, companies have raised $180 million in ICOs as at July 2017, as compared to the $101 million raised in the whole of 2016. This figure is expected to continue to rise before the end of 2017. ICOs are the way to go if any company must raise enough funds to strengthen the market capitalization of their crypto currency in the coin market.
However, what if you want to launch a new crypto currency? With the plethora of authentic crypto currencies and the commensurate number of scam coins available, it becomes more difficult with every passing day and every new digital currency to trust the authenticity of any digital currency startup.
Traditional investors are becoming more skeptical (or are entirely averse to the idea) of new crypto currency ventures. That means that trying to go to the bank or other traditional financial institutions or trying to do an IPO will most likely not work out.
You already stand at a disadvantage because of your business idea. Even if you do decide to take steps to apply for funding via any of these traditional means, you still have the banks to deal with, the Securities and Exchange Commission (SEC) and other relevant third party institutions. You will have to go through a ton of paper work and abide by a myriad of policies set forth by these institutions, after which your application for funding might still be refused.
With an Initial Coin Offering (ICO), you circumvent all those stringent processes and requirements; you go directly to the people who are plugged into the world of crypto currency and use it every day. There will be no regulating body like the SEC or a banking institution in terms of a loan, to disburse funds to you in trenches and set forth (probably unfavorable) terms of repayment.
With an ICO campaign, you give coin tokens (percentage ownership of your new crypto currency) to investors in exchange for funds (legal tender) or another crypto currency, usually Bitcoin. These coins are usually unsalable for a defined period of time after which the currency becomes more liquid. This path has proven to be much more successful than any other form of funding.
Case in point, Ethereum ICO in 2014, which gave Ethers as its coin tokens and was able to raise USD18 million worth of Bitcoins ($0.40 per Ether) or the most successful ICO in history, that of MadeSafeCoins (MAID), whose coin tokens were bought out by investors within 5 hours of the ICO campaign going live.
The world of ICO crypto currency funding is a fresh new world that allows everyone to invest in crypto currency, no matter their wallet size. This is not the case with Cryptocurrency Market IPOs according to Crypto Investor and Analyst, Tai Zen of New York.
Investment opportunities abound in the world of crypto currency and offer relatively faster returns, however, with every new ICO, investors learn valuable lessons that help them to be more discerning in where it concerns the long-term potential of these new coins, in lieu of short-term gains.
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