How Investors Are Using Initial Coin Offerings (ICO’s) To Get Big Returns in 2017

Investors have looked to IPO’s (initial public offerings) as a way to achieve spectacular returns in the stock market by investing in companies early, especially during bull markets.

In the age of Block-Chain, startup companies are offering tradable tokens, not stock, as a way to raise funding from the public. On July 25th, 2017 the US Securities and Exchange Commission (SEC) released guidance that determined most tokens to be securities, and thus subject to regulation. Despite this, 204 new ICO’s have announced releases in the past month, according to data from tokendata.io.

ICO’s are gaining popularity with investors because they avoid many of the restrictions that come along with investing in IPO’s. The 90–180 lock-up period associated with IPO’s often stops investors from capitalizing on the early fervor associated with the issuing of the stock.

CHART: Snapchat ($SNAP) Performance Since IPO

Snapchat, among many other recent IPO’s, demonstrated the potential danger of not being able to sell your holdings. Unlike IPO’s, initial coin offerings often times forgo any lock-up period.

Normally investors would need millions of dollars of capital to put together a properly diversified private equity or venture capital portfolio. Today, smaller investors are utilizing token investments to make their investment directly in companies smaller than if they conducted the investment in a traditional cash-for-equity format.

Crowdfunding Legitimized — For the last 5 years, crowdfunding has been an emerging way for companies to raise money, and for investors to seek out venture capital exposure. The major question has been how to conduct crowdfunding operations in a way that provides a sufficient level of transparency, liquidity and legal security for investors.

Blockchain technologies are providing an ideal structure to execute crowdfunding for start-up companies. With the use of block-chain tokens, investors are provided with a a security, much in the same way an IPO investor is. This provides them with similar investment characteristics to an IPO, except for that they do not have the lock-up period associated with IPO allocations.

About the Author: Jacob Wohl is the CEO and Head of Fixed Income and Interest Rates for Montgomery Assets, a proprietary trading and asset management firm based in Los Angeles, CA.

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