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No ICO Needed: Real Business Starts To Launch Blockchain Startups
09 November 2018 16:58, UTC
By Anastasia Ermolaeva
During the first three quarters of 2018, ICO projects managed to attract $13.9 bln of investments, which is by $10 bln more or 263% higher than the total volume of 2017. At the international forum Blockchain Life 2018 we talked to the participants of the crypto market to find out whether ICO has retained its popularity and what kind of sentiments exist on the market of blockchain projects in general .
"Depressive”, - without a moment's hesitation shoots the Executive Director of one of the projects Andrey TIKHOMIROV: “This is due to the fact that the market was pumped with air, all these promises of 2017 and illusory projects that went nowhere. Everybody was running after the pink pony, but got a little black donkey, limping on two legs”. Statistics show that more than 80% of the ICO have turned out to be scams, which gave the term a very negative color. Therefore, when we asked Andrey TIKHOMIROV if they were holding an ICO, he hurried to dissociate from this term: “We are not an ICO, but a socio-economic project organized by a company that has been successfully operating since 2005. It would be more precise to say that we hold token sale, but not an ICO”.
The ICO-scam is not the only unfair fundraising strategy, damaging the reputation of the blockchain-startup market. Some projects arrange a pump-and-dump event on their own unsecured tokens. In case of ICO, teams make profits once upon the fundraising is complete and disappear, however when it comes to pump-and-dump they can earn on inflation of a token that once got depreciated, theoretically, for several times, says ICO consultant Giovanni CASAGRANDE. He himself witnessed such a fraud, which affected 10 thousand investors and now he suspects the Italian startup Friendz. Despite the fact that the project has a high rating on ICO Bench and after 20 days of ICO in March raised $27.5 mln, on the chart below you can see that since the listing of the FDZ token on the HitBTC exchange its generally zero value had several minor spikes, possibly provoked by the team itself.
“Fortunately we have STOs now, which by definition falls under a greater regulation. As for a a utility token, I always look at how the team is going to implement it on their platform and in the community. If its utilization does not make any sense, then we can safely say that the project is a scam”, - the expert continues. In his practice he met a lot of startups that came to him without a budget: "We do not have money, but here are our tokens, they tell me. And I say, ok but the value of your token is zero. Such projects don’t do business, they simply shake the air with big words".
The average cost of fundraising through ICO increased by 300% from $250,000 in 2017 to $1 mln in 2018 (a detailed analysis of expenses is in our material). And if we consider the best scenario in which the project will be able to attract $100-200 mln, it becomes clear that holding an ICO can be quite costly. “In very rare cases, I undertake to help projects without money, but they must have a strong idea, technology, potential of their token, experienced team. But even in such cases, the maximum that I can offer is to attract a small number of new users and investors to their community using growth hacking techniques”, - concludes the Italian expert.
By the way, he, just like Andrey TIKHOMIROV, notes that the startup market is not going through the best of times, but he connects it with the fall of the Bitcoin rate by 70% and a long bearish trend: “Small investors are not ready to make new investments now. They are waiting for the growth of prices for cryptocurrencies as well as the entire market”. However, Giovanni CASAGRANDE is convinced that institutional investors are not needed on the crypto market, explaining that with their arrival there will be a lot of procedures inherent from traditional business: a large number of documents, audits, etc. “They will want to control everything, which will eventually kill the projects. There are other options to raise capital such as crypto funds”, - believes the expert. It should be noted that at the moment 370 crypto funds manage assets of $10 bln worth, while the assets of hedge funds alone in 2018 should exceed $4.8 trln. The difference of 480 times is very impressive, and when you consider that hedge funds among all the institutions do not manage the biggest volume of investments, many may disagree with the Italian expert. The stagnating market needs a push, which can only be created by an inflow of big money, and only institutional investors have them. The traditional financial business itself is trying to drag them to the market, such as Fidelity Investments with their highly secured custodial service, Morgan Stanley, Citibank and Goldman Sachs with derivatives with Bitcoin as an underlying asset, Intercontinental Exchange with its regulated trading platform Bakkt.
"Any market needs investors. But there are still only few real projects, backed by real actions, business, but not just big words, ideas, and four-person teams. On the Russian market, they can be counted on the fingers. Therefore, serious investors do not come”, - Andrey TIKHOMIROV says with frustration. Despite the fact that the current situation is so indeed, more and more projects, behind which there is a real business or an experienced businessman, are entering the market and the forum is just a proof of that.
Japanese Hirofumi MIZUYAMA has been in business for 25 years with a specialization in structured finance and private equity, while for 15 years he has been running his own company, as well as numerously involved in the listing of third-party businesses. He admits that during his professional career he experienced a collapse of bubble economy three times: the Asian financial crisis, the dot-com bubble and the world economic crisis of 2008, which taught him a lot. He does not believe that the breakdown of the crypto market at the beginning of this year can be compared with those bubbles in terms of scalability: “The market capitalization of cryptocurrencies, even if putting all of them altogether, amount only to one twentieth of the market capitalization of Tokyo Stock Exchange. If limited to altcoins, which will cover all the upcoming cryptocurrencies, the market capitalization only amounts to one percent of TSE. With only this volume, there is no collapse of bubble economy. It is just a newborn stage. With such a scale, nobody could judge ups and downs of the price”.
On the forum Hirofumi MIZUYAMA presents his new project, this time built on the blockchain. But he does not hold an ICO either: “We do not need it. My friend and I had enough money and we have already listed our token on the exchange”.The main purpose of the visit is to communicate with foreign representatives of the crypto community from China, Thailand, Korea and Russia, and understand what they need. He notes that if people in South Korea are more focused on technology, the Russian market is more active in terms of finding new projects: “I like the energy that I get here. This is my fifth visit and I must say that judging by what I’ve heard at this conference, people believe in the future of the industry”.
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