Criptomonedas, Blockchain, ICOs & Startups

En los últimos meses, nos hemos visto inundados de conversaciones y opiniones sobre el mundo de las criptomonedas o “Bitcoin”, término que se suele utilizar como genérico para todo tipo de criptomonedas y ICOs.

El revuelo generalizado se ha generado principalmente por las oscilaciones que sufrió el valor del Bitcoin en el mercado. La más pronunciada sucedió en diciembre 2017, cuando la curva creció sostenidamente hasta pegar el salto exponencial, donde el precio de un Bitcoin (BTC) alcanzó el récord histórico de U$S 19.783 (según Coindesk).

Corrían las historias de amigos y conocidos que habían adquirido Bitcoins por algunas decenas de dólares y sus ganancias eran ahora increíbles. También se sumó el famoso efecto FOMO (“fear of missing out” = miedo de quedarse afuera), con el cual el hombre medio no sabía ni entendía porqué subía el valor del Bitcoin, pero estaba seguro de que quería aprovechar esa oportunidad de enriquecerse rápidamente y con poco esfuerzo.

Toda la actividad que se vivió y que aún se sigue viviendo en el mercado, raspa apenas la superficie del iceberg: lo visible y emocional.

Hay un fenómeno mucho más relevante y significativo: la aparición de una tecnología sustancialmente disruptiva que parece haber llegado para quedarse e impactar en muchos ámbitos de nuestra vida de forma transversal: el blockchain.

El Bitcoin es un elemento más relacionado a esta tecnología que, por sus características particulares, es fácilmente negociable. Esto, sumado otros factores, como lo son el aumento de las plataformas de trading y una mayor accesibilidad para los mineros, se generalizó un gran movimiento en los mercados.

Con la explosión de las criptomonedas y los ICOs, parecería que estamos viviendo una situación análoga a la de la burbuja “.com”, en la cual se inflaron los valores porque todos querían ser parte e invertir en activos que supuestamente iban a incrementar su valor, sin saber cuál era el real valor de cada compañía, y en muchos casos no contaban con las herramientas para analizarlas correctamente.

En este artículo intentaremos explicar el verdadero valor del blockchain, los ICOs, las criptomonedas y los principales negocios que pueden existir en torno a este fenómeno.

Hemos observado que existe una confusión generalizada sobre lo que realmente valen las criptomonedas y la utilización del blockchain: parecería que solamente se está pensando en el valor de las criptomonedas en base al mercado secundario y la especulación, al menos en el hombre medio que no está inmerso en el mundo de la tecnología o las finanzas. Es un contexto en el cual muchos aprovecharán la situación para beneficiarse del FOMO fomentando a otros desesperados a invertir impulsivamente, seguramente con expectativas u objetivos desmedidos, irreales o infundados.

El Blockchain es básicamente una base de datos compartida. Funciona como un libro para el registro de operaciones de compra-venta o cualquier otra transacción. Es un conjunto de registros que están en una base de datos compartida online en la que se registran, mediante códigos, las operaciones, cantidades, fechas y participantes.

Al utilizar claves y al estar distribuido en muchos ordenadores, presenta ventajas en la seguridad frente a manipulaciones y fraudes. Esto implica que una modificación en cualquiera de las copias no sirve de nada, ya que la base es abierta y pública y, para que esto funcione, este cambio debería hacerse en todas las copias que se encuentran distribuidas en la red.

Uno de los roles importantes en la red son los nodos. Estos mantienen copias constantemente actualizadas de esta base de datos compartida (blockchain).

El otro rol importante lo cumplen los mineros, quienes realizan las transacciones de la red. Estas se realizan gracias al poder de procesamiento que ellos vierten a la red resolviendo problemas informáticos. Por esta tarea son recompensados con criptomonedas.

La importancia del blockchain reside en los múltiples usos que se le puede dar en varias industrias como, por ejemplo, el mercado financiero.

El desafío que presenta el blockchain para esta industria, es la de un futuro sin un control central como un banco, con transacciones aprobadas automáticamente en segundos o minutos, reduciendo significativamente los costos e impulsando la eficiencia.

A partir de todo este fenómeno y, a diferencia del sistema financiero convencional, las Ofertas Iniciales de Monedas (más conocido por sus siglas en inglés ICO o Initial Coin Offering) presentan una alternativa no convencional de crowdfunding. Esto permitió que varias empresas y proyectos exitosos obtengan la financiación necesaria para comenzar su negocio de manera mas rapida y economica, y con un proceso menos sujeto a regulaciones.

Al comprar estas criptomonedas, los inversores apuestan a que la empresa emisora tenga éxito y, como resultado, la moneda aumentará su valor.

Para analizar el verdadero valor de estas criptomonedas, abstrayendonos de la especulación del mercado, es necesario analizar la empresa que ha emitido la criptomoneda: el equipo, el producto o servicio, el modelo de negocios, el mercado potencial. En pocas palabras, tenemos que volver a los fundamentals para analizar el valor de la empresa en base a su potencial. Para esto, una herramienta muy útil es informarse del verdadero potencial de la compañía, su estrategia y el equipo que llevará a cabo los proyectos. Para esto es crucial analizar los white papers que emiten las compañías cuando inician el proceso de ICO.

Las criptomonedas o tokens que pagan dividendos, comparten ganancias, pagan intereses o invierten en otros tokens o activos para generar ganancias para los titulares se consideran Security Tokens.

Gran parte de la estrategia para lanzar ICOs está basada en acciones de marketing: se arman equipos con profesionales de renombre y se realizan grandes anuncios en el mercado mundial, generalmente comunicando que una parte relevante de las criptomonedas emitidas ya se encuentran suscritas por líderes del mundo de la innovación y de las finanzas con el objetivo de captar a los inversores minoristas. Sin embargo, no todas las compañías explican acabadamente su propuesta de valor y la razón por la cual la tecnología de blockchain aportará valor a su proyecto.

Por otro lado podemos encontrar los Utility Tokens, los cuales representan el acceso futuro al producto o servicio de una compañía. Las compañías pueden vender “cupones digitales” para el servicio que está desarrollando. Es un modelo similar al de los minoristas de productos electrónicos que aceptan pedidos anticipados.

El impacto del mercado secundario y la especulación es el factor de influencia más extrínseco a la criptomoneda. Desde un punto de vista cortoplacista y financiero, quizás es el factor más importante y con el cual muchos ya se han enriquecido, pero definitivamente es el que menos tiene que ver con el real valor de la moneda y con sus activos subyacentes.

La especulación y el arbitraje influyen mucho en el precio de las criptomonedas. Los activos subyacentes, es decir, las compañías emisoras y su performance, son mucho menos visibles y conocidos. Asimismo, la manera y el impacto de los factores coyunturales (Ej: contexto macroeconómico y social, regulaciones, etc.) que influyen en el desarrollo de esas compañías, son mucho más inciertos e imprevisibles, con lo cual cualquier noticia o rumor puede generar un alza o baja exponencial en el valor de mercado de cada criptomoneda.

Las ICO han ganado popularidad masiva en los últimos meses entre startups como un medio para recaudar fondos.

En abril 2017, el capital total recaudado a través de ICOs fue de alrededor de U$S 100 millones y en mayo, la cantidad subió a alrededor de U$S 250 millones.

El mes de junio resultó ser la mayor sorpresa, cuando el financiamiento total superó los U$S 550 millones, siendo la primera vez que supera a la inversión de VCs de etapas temprana e inversiones ángeles, la cual fue de menos de U$S 300 millones en el mes de junio.

En julio, las ICOs superaron los U$S 300 millones, mientras que los fondos VCs de etapas iniciales y ángeles levemente por sobre los U$S 200 millones.

Fuente: Yahoo! Finance

Con estas cifras y con un rápido acceso al capital, las ICOs se han convertido en la mayor fuente de financiación. Es una gran opción para aquellas empresas que persiguen la aplicación de la tecnología blockchain.

Increasing Interest of VCs in ICOs

Despite the growing concerns of regulators over the ICOs, venture capitalists (VCs) have shown increasing interest in these offerings. However, what they are more interested in is the equity stakes rather than the proceeds from coin sales. Moreover, the growth of security tokens is expected as regulators intervene.

According to the statistics by CoinDesk, the funding has increased dramatically in the blockchain based firms, and startups have managed to raise about $434 million in just 3 months since December. Although, the token industry in the United States is under the scrutiny of the Security and Exchange Commission, piqued interest by VCs is an indication that digital currency business will experience growth.

Frank Meehan, the partner in SparksLab Group, said that if a firm gets an initial coin offering, the value of his equity will increase; this is exactly what it is all about. He also added that they have invested in 6 blockchain companies. In fact, the blockchain fund of 100 million dollars that was launched at the end of 2017 is a part of the Group.

Betting on Blockchain Companies

As discussed, investors have increasingly funded the blockchain startups during the past three months. CoinDesk data releaved that token sales have surged and startups raised funds of over $3 billion via ICOs during the first 2 months of 2018. It is more than 50 percent of what they raised in 2017.

According to the statistics by TokenData, last year 46 percent of the token startups either suffered from failure after the offering or could not complete funding. It further revealed that so far in 2018, a total of 50 startups have failed out of 340. There is no surprise as to why the failure rate is so high. After all, it is just a white paper and many of the products they are offering are not even functional – the technology has not even been tested on a mass scale.

VCs Are Cautious About Investing Too Much Too Soon

Therefore, some investors would wait for these firms to mature, while waiting for the decision regulatory authorities might take in future. Investors are looking for established companies, which means startups should raise money to fund their marketing and developing activities.

A managing director of Insight Venture Partners, Lonne Jaffe, acknowledged it by saying that it is a good time for them to be cautious, as they won’t be missing out on anything big. He furthered it by saying that they will start investing once firms begin to scale up; they have also been communicating with their portfolio firms about how they can serve the startups and use blockchain technology. He also revealed that they have a total of $18 billion in raised-capital for over 300 firms, which also includes Twitter Inc.

Pressure from the Regulators?

Although, there is a well-established regime by the regulatory authorities, the regulations for initial coin offerings are still evolving. The Treasury Department in the United States issued a letter on March 6, in which, it was stated that issue tokens will be considered as money transmitters; they will be required to follow the know-your-customer and bank secrecy guidelines.

Jay Clayton, the Chairman of SEC said that every offering he has come across is a security, even if token startups believe they are not. In fact, last month in March, Google, Facebook, and Twitter joined hands to ban advertisements for coin sales and ICOs. Also, the leading digital currency, Bitcoin, reduced in value by 8.7 percent.

Investors are interested to purchase security tokens with some kind of security attached in the form of equity or other assets as it will serve as a cushion in case there is some kind of regulatory shock in the future.

The co-founder of Securitize.io, Jamie Finn, has revealed that they plan to raise billions and have more than 100 startups in the pipeline. They provide a platform to issue tokens that have some sort of backing, such as company revenue or equity.

Currently, there is hardly any exchange that trades security tokens. An SEC-registered broker-dealer, Templum LLC, has been offering this service. It is an alternative trading system.

Besides, compared to a conventional startup equity that remains tied up for years, tokens backed by equity are traded more easily. Finn also added that after the end of lockdown, a person can even sell the equity-backed tokens. Moreover, one can easily purchase and sell them online. Similarly, family offices can directly invest in these securities rather than investing via funds.

Venture Capital Sector Facing Challenges in the Era of Cryptocurrency

In the past couple of years, cryptocurrency has experienced a sudden boom and is now making news in every sector. In the beginning, when bitcoin was in its initial stages, everybody was talking about Venture Capital (VC) and how it is going to benefit the small businesses.

So many venture capitalists made money by investing in innovative ideas that eventually materialized into unicorns. Instead of investing in the digital currency like bitcoins, investors preferred to invest in the companies, such as Coinbase or 21.co.

Bitcoin Price at All Times High

Some of these firms performed better than the other. For example, Coinbase ended up being in the first place in the app store of Apple last December as a result of hype over bitcoin. On the other hand, 21 kept changing its names and business plans. Back when Coinbase got its first round of funding from VCs, its price was about $110. However, recently, it has managed to reach $19,000.

An investment associate in the Digital Currency Group, Travis Scher, was of the opinion that had investors invested in the cryptocurrency instead of investing in digital currency firms, they would’ve gotten much higher returns by now.

VCs and the Increasing Trend of ICOs

This isn’t easy to grasp as it complicates the core idea of VCs.

The conventional way of making an investment was to find out the rising trend in technology, identify the targets that were in line with those trends and were in a better position to make it big, and then taking a profitable exit as soon as those companies were either sold out or went public.

But it won’t be an effective strategy for digital currencies like bitcoin. In fact, as more and more cryptocurrencies have entered the market, it has become even more confusing and complex. The community of dreamers, and entrepreneurs have been raising money via ICOs (Initial Coin Offerings), wherein, they create their own digital currencies, sell them for money and trade them in the open market.

When it comes to venture capital firms, they offer the investors an unrestricted access to private companies that are not publicly listed. Therefore, the question is, where will these venture capital companies go, if ICOs become a strong medium for people to get a bit of hot technology.

Venture Capitalists and their New Tactics

Venture capitalists have been devising new tactics to deal with the frenzy of cryptocurrency. Instead of seeking a stake in the digital currency firm, they have started purchasing the rights to acquire tokens ahead of initial coin offerings via legal contracts. In addition to that, they are improvising conventional equity deals, offering guarantees to investors in terms of getting tokens if a startup company goes for ICO in the future.

Some investors have also invested directly in bitcoin for years. The founder of VC firm Social Capital, Chamath Palihapitiya, said that he, along with his partners, invested in 5 percent of the bitcoin in circulation and still hold a reasonable stake in the currency.

Increasing Risks Faced by Investors in the Digital Currency Market

Although, the cryptocurrency market is rapidly growing, yet, it is not without risk. In fact, so many investors have suffered from hacking attacks and have also been threatened physically.

Threats are very real and harmful, because bitcoin will be lost forever if somebody steals it.

Cryptocurrency Hedge Funds and Futures Tokens

So many VC firms, including Sequoia Capital, Union Square Venture, and Andreessen Horowitz have made an investment in digital currency hedge funds in order to benefit from the boom without worrying about managing these currencies. They earn profits by trading dabble, litecoin, ethereum, and bitcoin in the ICOs market.

Some of the big names in the world of VC, including Bain Capital Venture, Union Square Ventures, and Sequoia Capital, have entered the deals to acquire digital tokens. For that, they are using legal agreements called “Simple Agreements for Future Tokens” also known as SAFT. Andreessen Horowitz is also taking steps to include provisions in standard contracts for investments in order to properly address ICOs.

According to a research website, in 2017, startup companies made about $3.6 billion in ICOs. This, however, is nothing in comparison to the $52.6 billion earned by VCs from around the world, as stated in the report by CB Insights and PricewaterhouseCoopers. Despite that, investors are inclined toward ICOs as it enables them to make millions in short span of time as compared to VC investments, which take years before you can reap the return.

Should Regulators be Concerned About This Profitable Investment?

Although investors from around the world have shown increasing interest in the digital currency, many regulators negatively criticize Blockchain and Initial Coin Offerings (ICOs). However, there has been an exception recently as Yao Loong Ng, the executive director of the Financial Market Strategy department, is encouraging the regulatory authorities around the globe to learn about cryptocurrency and ICOs. He even pointed out the fact that learning about the developments in the world of digital currency can be useful for regulators.

In a panel discussion of the South East Asian Nation Capital Markets Conference that was held in Malaysia, Ng said that it takes a lot less time to market for the ICOs as compared to IPOs (Initial Public Offerings).

IPOs can take as much as 9 months to market. This is why he believes that if the entire process of writing a white paper for ICOs and its subsequent listing is taking just a few days, then regulators certainly have something to learn from it.

Current Developments in Cryptocurrency

But the question is, why is there a need to regulate it? Cryptocurrencies have gained a lot of traction in the last few years and so many investors have been investing in the virtual currency. In fact, in July 2017, Alex Tapscott, Blockchain Revolution’s author, made an announcement of closing an over-subscribed financing of 20 million dollars for his digital investment funds. The hedge fund is called NextBlock Global. His opinion is that this fund has everything, including domain expertise, and market access to have a bright future.

Last year in September, Olaf Carlson also created a hedge fund of digital currencies, which had more than $200 million in Assets Under Management. Among many venture capital firms that are backing this fund, Union Square Venture, Sequoia Capital, Andreessen Horowitz are a few leading names.

Currently, the majority of the investors in the world of digital currency are either individuals with high wealth or retail investors. Institutional investors have so far shown very limited interest in cryptocurrencies. But this is not going to stay the same. In fact, the change has already started taking place. The new flow of investment by the institutional investors will give a boost to bitcoins and other altcoins by pushing its value rapidly in the upward direction due to their small market capitalization.

In times like this, it has become increasingly important to step forward. Instead of negatively criticizing the new form of currency, it’s time to embrace it and start the efforts of regulating it. Although, there has been a constant backlash from the regulators community at large, there are a few countries where authorities are working on creating regulations.

Regulating the Digital Currency

In Malaysia, the Security Commission has made an announcement that it is currently in the process of preparing guidelines and regulations on how these currencies should function, which includes secondary market trading of established digital assets and currencies.

Tan Sri Ranjit Singh, the chairman of the commission said that they are working closely with the central bank of Malaysia to develop a framework on cryptocurrencies. He further added that it will take a few months for the framework to complete. He also mentioned that they are observing it very carefully and since the Security Commission control and regulate the secondary market, they will design the rules and regulations in such a way that there is a right condition in place for trading values in order to secure market integrity. This is also being done for providing the projection to investors.

Regulatory Efforts

A consultant at the Institute of Defence Studies and Analyses, Munish Sharma, talked about the dilemma faced by most regulators, especially when it comes to the existence of this new technology in the highly regulated space. He said that digital currency has gained a lot of investors’ attention in the past 5 years, but at the same time, there have been growing concerns among the financial institutions’ regulators around the world.

Instead of just letting the digital currency grow without any interference or regulation, governments of various countries are brainstorming with the regulators on how to regulate these virtual currencies.

Rising Trend of Initial Coin Offerings

According to a report by Mangrove Capital, 204 ICOs have made a return of about 1,320 percent.

At the same time, investment banks and hedge funds have shown increasing interest in the digital currency with over 55 crypto-specific hedge funds. Before diving deep into why investors are showing greater interest in cryptocurrency, let’s take a look at what ICO is.

What is ICO?

Unlike conventional financial system, ICO or Initial Coin Offering is an alternative and unconventional way of crowdfunding. It has enabled a number of successful firms and projects to get the finance to start their business. New businesses and startups around the globe are getting millions of dollars in funds by issuing digital coins. The rising trend of digital currency has made people both worried and excited.

In ICO, the coins bought by investors are for businesses and marketplaces that are not developed yet. By purchasing these coins, they make a bet that a firm or startup will end up becoming successful and as a result, the coin will increase in value.

In average it takes about six months or a year to raise money with conventional venture capital (VC) system, but it is different when it comes to ICOs. In this token crowdfunding, you get to have a large crowd of engaging supporters who want to see you succeed. Not only do they campaign for you, but they are also your early adopters.

Growing Trend of ICO

Startups have raised more than 2 billion dollars since the start of 2017. It is a huge amount of funding, given the fact that not many people knew about it a few years ago. Businesses are making money via this mode of funding faster than usual.

In April this year, Gnosis (prediction market for Ethereum) managed to raise 12 million dollars in just ten minutes. In June, Mozilla’s founder raised 35 million dollars by selling Basic Attention Tokens in under 30 seconds for his new web browser startup called ‘Brave’.

ICOs have become the name of the game as they have left the venture capital market behind and are the biggest source of funding. It is a great option for those companies that are pursuing the application of blockchain technology.

Concerns by the Regulators

Despite the increasing trends of ICOs, regulators have shown serious concerns. They are warning investors that it is a high-risk investment.

Although, some coins value has dramatically increased, a very high volatility cannot be ignored. Some have also considered it a ‘speculative boom’, but that did not stop investment banks and hedge funds from showing their interest by making an investment in cryptocurrencies and ICOs.

Reason behind the Increasing Interest of Institutional Investors in ICOs

The digital currency market has made massive profits in the past one year or so. Initially, institutional investors were curious about what this is all about, but they started getting a hang of it gradually and became less apprehensive and more interested in this alternative investment. It is a kind of chain reaction that started with the rising interest among venture capitalists and now institutional investors, including mutual funds, investment banks, and hedge funds are following their lead. They have shown growing interest and are making an effort to estimate and grab the opportunities in the cryptocurrency market.

The reason why they are more interested in the new and unconventional currency is that it promises a higher return as compared to market averages. According to a fintech analytics firm, there have been at least 55 cryptocurrency hedge funds and a former manager at Fortress, Mike Novogratz, has recently announced a plan to use 500 million dollars for a new digital currency hedge fund. Blockchain Capital also made an announcement of raising 150 million dollars; a part of this fund will be for cryptocurrencies.

Goldman Sachs’ Approval

Goldman Sachs is planning to set up a bitcoin trading desk, as they believe that institutional investors are interested in cryptocurrency more than ever. The firm has reported it to be ‘a major milestone’. They believe that the investors need an over-the-counter brokerage platform where they can sell or buy as much cryptocurrency as they want. Goldman Sachs is of the opinion that it can take up this role, but there will be other issues, including market infrastructure and serious concern by the regulators.

If, however, ICOs becomes regulated, it will change the way how businesses raise money and will also impact the venture capital market.

ICOs Surpassed Early Stage Venture Capital Funding

New startups that raised funds through Initial Coin Offerings (ICOs) have now surpassed the early stage VC Funding for internet firms.

But before diving into it, it is important to know what ICOs are.

What is Initial Coin Offerings?

This is another way of raising cash.

Cryptocurrency and blockchain startup companies raise capital through ICOs by selling tokens of investors in exchange for equity funds. It is somewhat the same as Initial Public Offering in which stocks are issued in exchange for equity. Just like crowdfunding, ICOs provide a way to get funds from users by enabling them to have a share of the business. They get digital currency in exchange for the money they invest in the business.

Rising Popularity of ICOs and VC Funding

ICOs have gained massive popularity in the last few months among blockchain and cryptocurrency startups. In April this year, the total capital raised via these offerings was around $100 million and in May, the amount went up to about $250 million. The month of June turned out to be the biggest surprise when the total funding exceeded $550 million. According to Goldman Sachs, it was the first time that it performed better than seed and angel venture capital funding. Early stage and angel venture capital funding was less than $300 million in June.

In July, the offerings were a little more than $300 million, whereas, early stage and angel funding was just a bit higher than $200 million.

Popularity Among the Celebrities

ICOs have become so popular that even the celebrities, including Paris Hilton and Floyd Mayweather, have started jumping on board. In fact, Paris has been involved in it for over a year now and also met the COO of Ethereum last year.

Total Value of ICOs in 2017

The total value raised by 92 ICOs in 2017 is $1.25 billion. This is a really good number, given the recent boom of such offerings in the VC sector. There are so many firms that have used these offerings to raise money. For example, Tezos managed to get the capital of over $200 million by creating a new blockchain, whereas, another firm, Bancor secured $153 million via ICO.

Criticism and Scrutiny from Regulators

Despite the boom, this phenomenon has been under severe criticism and scrutiny from regulators and other authorities. For example, the Monetary Authority of Singapore (MAS) released a statement in which it was mentioned that these offerings are exposed to money laundering and other terrorist financing risks, because the nature of these transactions remains anonymous. Another concern raised by the MAS was the collection of large amounts of capital in such a short time frame, which makes ICO vulnerable to high-level risk.

On the other hand, the Security and Exchange Commission (SEC) said in July this year that the security law of the U.S. will be applicable to this cryptocurrency. The experts are also showing concern over its legitimacy. They have highlighted that the sale of a cryptographic token makes the investor entitled to a certain share of profit in the firm, which can be considered as a violation of financial rules and regulations. The People’s Bank of China and a lot of other government departments have released a joint statement that people and firms that have raised money through ICO should also make arrangements to return that capital.

Firms Facing Increasing Risk of Getting Hacked

Despite all the boom and criticism, the risk of ICOs cannot be ruled out. A clear example of this is CoinDash that initiated an ICO, but ended up getting hacked in July. As a result, all of its funds got stolen. Although, it has gained popularity in the past few months, yet, the risks cannot be ruled out entirely.

Future of ICOs

The Chief Information Officer of UBS, Oliver Bussman, raised his concern and said that strict regulations and measures, as applied to IPO businesses, are required in ICO to safeguard the interest of investors. However, he is quite confident about this new mode of raising funds and expressed that such offerings will continue to happen in future. He said that as a new business model that is benefiting the blockchain technology, ICO will continue to sustain by combining hybrid equity ownership/currency and crowd funding.