Is It All Doom And Gloom?
This week’s hot topic - ICO’s are still as attractive as ever
For those who have not had experience with ICO’s, they are a newly established mechanism where start-ups are raising money through issuing tokens which in the future can be utilised on a unique platform or more broadly to buy and/or sell goods and/or services.
Since the start of January, the crypto asset market has been experiencing significant losses across the board. However, ICO’s which are potentially the riskiest aspect of the market have remained relatively unaffected. In January, approximately US$450m was raised to fund start-ups through ICOs, the most since October 2017. This highlights that despite the current market condition, many still see significant value in crypto assets and blockchain technology.
As the market stalwarts like Bitcoin, Ethereum and Litecoin continue to face scaling issues, new innovate solutions to scale blockchain are being proposed, with faster transaction speeds, reduced fees, new token economic models and improved environmental footprints. Further, new applications to apply blockchain and tokenise value to are being founded, such as tokenising energy markets, cloud computing, computing power, gaming, gambling, sport franchise ownership, identity, medical data, marketplaces, social media and advertising.
With approximately 50 ICO’s going to market this month, innovation in blockchain and its use cases is far from cooling down. Given the relative infancy of blockchain, we are still witnessing new applications and proposals being launched and developed everyday.
Institutional investors are looking at ICO as an extension to their crypto investment, when the market is underperforming, you use Bitcoin and Ether profits to invest in other projects. These projects are not calculated based on how much USD you have committed but how much BTC/ETH it will cost you to get in, profits calculated in BTC/ETH and opportunity of the purchased token is compared against BTC/ETH. The fiat currency is only used to gain entry into the asset. This is a great representation of the intended purpose of cryptocurrencies. Eventually when you want to exit your investment position, you will (for now) go back into fiat.
Magnet’s Take -
The crypto market responds quickly to news events, and prices are impacted almost immediately, however, ICO’s have a buffer from short term market sentiment as more often than not, they raise funds over a period of time that spans market conditions. If there is a prolonged downtrend in the crypto asset market then that could be reflected in ICO investments. Unless this happens, we expect ICO investment to remain strong due to the level of innovation and new applications being proposed everyday. Value transactions are a multi trillion dollar market and which we are still far from achieving.
ICO’s still remain one of the most risky investments in the crypto market as they remain relatively unregulated and more often than not do not have the team required, the resources, or sometimes even the intention of delivering on their promises. Magnet Capital recommends investors take extreme caution.
When conducting due diligence on ICO’s, Magnet Capital will assess the product being developed, investigate any working models or proofs of concept, look deeply into the team and their previous performances, investigate partnerships with governments and / or big businesses, assess the development roadmap, understand the token economics, identify the key problem they are trying to solve, value the problem and speak the founding members.
Building the Goldman Sachs of Crypto - Mike Novogratz is starting a Merchant Bank for Cryptos, the bank which will IPO in Canada and consist of four major areas; principle investing, trading, asset management and advisory.
Galaxy and EOS - Mike Novogratz and the development team behind EOS called Block.one are putting together a $325M ecosystem fund, essentially acting as a VC for applications and businesses who want to build on the EOS blockchain.
Canadian regulators have approved the country’s first Blockchain ETF. Harvest Portfolios will launch the ETF on the Toronto Stock Exchange next week, focusing on large and small scale blockchain technologies.
Santander Group has announced that it will be rolling out a new app, powered by Ripply technologies, in 4 countries. The app will enable customers in Spain, Brazil, the UK and Poland to conduct same day cross-border payments in less than one minute.
South Korea’s Finance Minister, Kim Dong-yeon, recently spoke positively of the benefits of blockchain, “Blockchain technology can disrupt and revolutionise the world”. In China to discuss economics, Kim Dong-yeon met with Zhou Xiaochuan, the Governor of the People’s Bank of China, to discuss the need for more cooperation with China on Blockchain technology.
The market continued its correction this week, falling by ~40% across the board. Continued media articles exaggerating events including bans in China and India have continued to weigh on the price of crypto assets.
The pressure on market price has not slowed down the demand for ICO’s, with many selling out in minutes through the week including WePower, ArcBlock, MedicalChain, Dadi, APEX and others.