With the Initial Coin Offering (ICO) 'honeymoon' brought to a slow-down by US regulatory action, the true effect of the ICO boom has been laid bare.
2017 saw the peak in ICO activity, with issuers raising substantial funds on the back of tokens minted with nothing underpinned other than the bold promises of management and a unique digital token. In essence, these ICO investors invested in nothing more than tokens rendered authentic and unique artifacts by blockchain technology. Digital assets, which blockchain hype minted as a new financing mechanism and a revolution in fundraising, would have had Hans Christian Andersen shaking his head in disbelief.
Banging on about these tokens being 'utility' and not needing securities compliance, many an issuer raised many millions of dollars, at times backed with the stamp of large firm legal teams, took investors down this rabbit hole, with sometimes no rights or entitlements other than raiding the wave of new technology hype and bold business promises.
Research firm Diar recently noted the catastrophic losses in token sales:
"Outside the Top 100 cryptocurrencies being traded, there is a $5 Billion shortfall against the total amount raised during an ICO for the 562 tokens with reliable information about their fund-raising. 7 out of 10 tokens that are sitting below the screen fold have valuations that are now under their initial raise.
The story is quite telling when accounting only for the tokens that are below the funding teams received. 402 out of 562 projects that raised over $8.2Bn are now worth $2.2Bn – an eye watering $6Bn loss in market capitalization value against actual cash paid out to development teams."
So, as the tide recedes, the extent of the exposure is astounding. Even the larger ICO's have struggled, and it brings into focus the question whether many of these businesses were suited to the distributed ledger. Diar further notes:
"Sirin Labs, the third largest ICO which raised $158Mn, had deep enough pockets to persuade football/soccer superstar Lionel Messi, arguably one of the most popular athletes in Europe to be their brand ambassador. It hasn’t helped keep up the company’s token price.
In fact, the project’s token, aimed at funding a “blockchain phone” is literally the worst performing token in total dollar value with their market cap losing $141Mn (see table). The phone is slated to launch at the end of November."
But it is Diar's table which really puts this in perspective:
Top 10 Losers Against Capital ICO Funding
Token Raised Market Cap Loss Sirin Labs 158Mn 17Mn 141Mn PumaPay 117Mn 15Mn 102Mn Envion 100Mn 4Mn 96Mn Paragon 95Mn 3Mn 92Mn Bancor 153Mn 73Mn 80Mn Bankex 71Mn 5Mn 66Mn Cryptosolartech 60Mn 1Mn 59Mn Kin 99Mn 46Mn 53Mn Olympus Labs 58Mn 6Mn 52Mn Leadcoin 50Mn 1Mn 49Mn
While ICO's differed in the benefits, and rights afforded to investors, US regulatory intervention has significantly sobered this market. There is more talk of 'tokenized equity' 'security token offerings' and mechanisms for restrictions on, and transparency in token transfers to meet Securities and Exchange Commission, money transmitter (Federally, through the Financial Crimes Enforcement Network (FinCEN)) and other regulatory requirements. Penalties are stiff, and ICO issuers who didn't comply are feeling the heat.
Nevertheless, even with regulatory compliance, raising money off the back of tokens which essentially are just digital assets pulled form the ether and technologically rendered unique, not only leaves one questioning the benefit for investors, but also ignores blockchain's true power and promise.
That power is essentially asset based blockchain applications. Specifically where tokens are tied to underlying and real, tangible value. Blockchain's potential here is vast. From fractional ownership in real estate, to interests in commodities, to digital assets. Blockchain has the ability to bring investors closer to the assets, and remove market inefficiencies which intermediary vehicles such as REITS, ETF's and other investment vehicles present.
Fine Art's potential for blockchain is uncommon as it combines a number of these features. It is asset based: the underlying assets are works of Fine Art. It allows for fractional ownership in Fine Art in an unprecedented way. Fine Art funds, few and far between have struggled historically with differentials in value, lack of liquidity and conflicts of interests. Fine Art blockchain solves this to a large extent. And, perhaps, most intriguingly, in solving the 'Double Spend' problem, blockchain finally brings original artifacts to images, film and other digital assets, potentially rendering a new Fine Art asset class in limited digital editions.
While cryptocurrencies, nothing more than digital assets, made unique and secured in the blockchain have caused a revolution, one which Joe Lubin, Ethereum co-founder recently called the "...natural evolution..." of money, how much more so with the potential for Fine Art?
After all the 'digital asset' here is not simply an ethereal representation of value, but a true asset, an expression of the human mind, a work of art.
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