After spending five days in Las Vegas for both Money 2020 and Coinagenda, I’ve come away a bit more jaded than a few weeks ago. Bear in mind, the ICO market is nowhere near the boom phase yet. We have several TRILLIONS probably before we get to the top. What’s changed for me is the growing threat of corporations and outsiders, who by in large will validate crypto and bring it into the mainstream, to existing open source/lite-goverened systems. This is going to be the real fight, which the existing community will lose to money, power and interest.
I was first interested in crypto for its ability to transcend borders, peoples and established systems. For years, the only meaningful thing you could do with Bitcoin was buy illegal products on the infamous Silk Road. Buying BTC was also a hassle. You had to go to dodgy exchanges, hoping you would be returned coins.
Well now things are a bit different. Overstock is creating Tzero, the first SEC compliant exchange with ATS, Polymath and Neufund are pushing forward to bring securities tokens into the forefront and a general sense is forming that all securities will be issued on the blockchain in the coming future. Securities tokens are the way forward if we want to turn this industry from a 150 billion dollar to 15 trillion dollar industry. Blockchain tech will be used by every company, globally, in the next 15-20 years.
The question is at what cost to the current system will this have. At the conferences I got the sense of the following:
- VC’s want the public sales to go away
- All coins/tokens will be regulated as securities
- Securities token issuance will make this utility token “boom” look like a drop of water in the ocean.
Let’s go through these
First, ICO’s have democratized capital investment, something which has been under the control of a small group of wealthy people and funds. It has allowed many companies to raise money where they otherwise wouldn’t have. Whether this is a good thing, time will tell. But what has been shaken up is traditional VC funding. Anyone with a website, smart contract and some code can go out and try to raise a few million dollars. The bar for entry has been set pretty low….. and this REALLY irks a lot of VC’s. They want oversight and controlling interest in these projects. They want to be able to still through significant weight around and determine the fate of these ICO startups. In a lot of cases, its good, because they flesh out a lot of serious issues and hopefully set the team straight concerning governance and other issues. What I don’t like though is the way they feel they can close off the market to non-accredited investors. As the market gets more mature, it will be ever more difficult for smaller investors to see the returns that occurred during the first half of the decade with bitcoin and other crypto. Big players will matter more at this point. What they will try to do is fit ICO’s back into their old funding system. This means killing all public sales, or reducing them to a small%. Most VC’s I heard said they didn’t want companies to go through the PR debacle of an ICO. Look at Enigma, they could have raised the entire amount privately, however, they chose to go the public route and eventually were burned for it. Killing the public sales would protect VC investments MUCH more. So, if you are a regular investor, try to make money while you can now, because it will stop soon.
Second, it’s naive to think that crypto will always be unregulated, easy to purchase and available for US citizens. In a strict sense, if the SEC wanted to, they could force all crypto in the US to be sold through a broker on licensed exchanges (we are going here). Tzero is doing this, but they are strictly limited to securities tokens. The SEC will probably rule that al crypto needs to be regulated, whether its a utility token or not, there is too much of a possibility for it to be misappropriated or fail to include KYC/AML. If crypto wants to get larger, we need these types of regulation.
Third, the amount of money raised by securities tokens will be big. Well, that’s an understatement, it will be the largest shift of wealth ever in human history. Trillions of dollars of crypto securities will be issued in the next few years. Companies who want to IPO will just have a token issuance instead for their equity. Every major fund will be tokenized. The reason for this is the frictionless transfer of wealth that can occur on the blockchain. As long as everyone speaks the same language or a form of it, then data can be sold. Don’t be afraid of the coming securitization. It’s what takes us to the moon.