The ICO Exchange: Fraud, Scam, or Bigger Than The Beatles?
Recently, I had the opportunity to participate in the annual meetings of the World Bank Group and International Monetary Fund in Washington D.C. After passing through full-body scans and pat downs similar to the ones I had experienced in the airport only hours before, it was an alternate universe for a fintech founder.. I felt like I had woken up in a chapter of Hitchhikers Guide to the Galaxy, where the subject finds himself dropped into an unfamiliar setting, with an handbook to a transformation so profound that few see it coming, much less understand how to use it.
During that trip to D.C., I met with governors of central banks, heads of state treasuries, ministers of finance, and other leaders in today’s financial markets. In one conversation with a Reuters panel, discussing transformation in asian capital markets, it stood out to me that that only 20% of the panelists claimed their funds had invested in bitcoin, blockchain, or distributed ledger technology. The rest declined to comment.
The most fascinating part of my experience can be summed up in two words — mass polarization. Whispers of blockchain, fintech, disintermediation… the need to regain control, and even an animated phone conversation about the need to take full advantage of the coming Bitcoin hard fork.
All I had to do was drop the term “ICO” and half the room would stare, practically on the verge of brandishing garlic and silver crosses. The other half though…they migrated over to engage in what turned out to be one of many riveting dialogues.
“What will happen to Bitcoin’s price?” (This was right after Bitcoin’s near $2,000 USD drop to around $3,100 value).
“Can an ICO be used to issue a ‘fiat cryptocurrency’?”
“Can a government-issued cryptocurrency solve our currency’s problems of lack of fungibility against, and reliance on, the mighty U.S. dollar?”
These were real questions coming from financial leaders in countries around the world, both the developed and the developing.
Someone said to me a few weeks ago, “I can hear the stampede coming.” They were wrong. The stampede is no longer just audible, the ground is now shaking around us. No wonder so many people are anxious.
In one meeting on fintech regulation for G20 countries, led by the Toronto Centre, a central banker posed a question to an esteemed panel of central bank governors and ministers of finance: “This technology is great, we want to use it…but at some point we need make sure these solutions maintain us as the intermediators of all this money.”
The last time we saw a shift of this magnitude, with the same polarized views, was at the dawn of the Internet. Today, many of the heavy hitters in film, music, and print from that time are gone. The fundamental nature of information transfer changed, and intermediaries such as Blockbuster were left in the dust.
The global adoption of radio and television technologies gave The Beatles their iconic rise to global domination. David Bowie, in a 1999 interview at the height of the dot com bubble, said, “I think the potential of what the internet is going to do to society, both good and bad, is unimaginable…the actual context and the state of content is going to be anything that we can really envisage at the moment.” We are now seeing a restructuring of context and the state of value in financial markets.
Once again, I pinched myself…How is this happening right now? Is the answer 42?
Another conversation began with the typical how-do-you-do, where are you from, what do you do…you know the drill. They hadn’t heard of ICOs, so I asked about their familiarity with blockchain technology. The response? “Oh I HATE BLOCKCHAIN! You can’t even control it! Why would anyone want that?”
My response….you can control it, you set the controls ahead of time and all parties who buy in have the ability to know exactly what the terms are. You can’t change them after the fact. This structure eliminates multiple opportunities for abuse, like we’ve seen from major firms like Lehman Brothers and JP Morgan during the most recent bank bailouts and the ‘Great Recession’. I think my response shed some light on the future of financial markets, and possibly changed their perception
What alarmed me most about these conversations was how many of the leaders in our global financial markets and governments were ideologically opposed to a technology. So many of them seemed to see blockchain and distributed ledger technology in some kind of dark voodoo, simply because they either do not understand it or are afraid of what it will do to their position of power.
The Dollar Dialogue — Who Controls My Money?
This brings me to another heated conversation…not one behind closed doors in beautiful downtown D.C. buildings, but rather one held in the public eye and mainstream media. Dialogue may be too generous of a word, let’s call a spade, a spade. It’s a debate, and the stakes couldn’t be higher.
On the one hand, you have those with the most to lose, those who have built their careers and fortunes off of leveraging, controlling, and, in some cases, manipulating the markets. On the other hand, there are the most esteemed, forward-looking thought leaders in the world.
Let’s explore the first group. I am going to use some of the most vocal proponents, Jamie Dimon, CEO of JP Morgan, and Jordan Belfort, better known as the ‘Wolf of Wall Street’. Dimon’s press briefings and public speeches made an impact, dropping the price of Bitcoin significantly as shown in the chart below, courtesy of Bloomberg.
Jordan Belfort’s comments of “I would never buy Bitcoin,” and “I never had much respect for the SEC,” were especially interesting, considering his release after serving only 22 months of his 4-year sentence for securities fraud and money laundering.
So why would people who have made their fortunes on Wall Street even care about a trend as relatively small as Bitcoin? After all, JP Morgan trades $6 trillion USD a day, something Dimon has used on multiple occasions to portray the firm’s strength comparative to the Bitcoin protocol.
The answer may lie in the graph below, also courtesy of Bloomberg, that shows how Bitcoin reached a $100-billion market cap four times faster than Apple did.
So who are these “stupid people” (Dimon’s words not mine) that are dumb enough to believe in a non-fiat digitally-distributed asset?
Let’s start with Steve Wozniak, ironically enough the co-founder of Apple. Contrary to Dimon and Belfort, Steve had a completely different perspective earlier this week: “There is a certain, finite amount of Bitcoin that can ever exist. Gold gets mined and mined and mined. Maybe there’s a finite amount of gold in the world, but cryptocurrency is even more mathematical and regulated and nobody can change mathematics.”
Another, “stupid” individual is Tesla, SolarCity, and SpaceX founder Elon Musk, who stated in an interview, “Money is only an idea, a number in a database, or a number of databases…my opinion of Bitcoin is that it is probably a good thing.”
Peter Thiel, co-founder of Paypal, told Fox News that Bitcoin critics are “underestimating [it] especially because…it’s like a reserve form of money, it’s like gold, and it’s just a store of value. You don’t need to use it to make payments.”
And so what do we as the general public, have to lose or gain from the emergence of blockchain technology and cryptocurrency protocols such as Bitcoin, Ether, Ripple, Stellar, and others?
Quite a lot, actually. And you should be paying attention. The fabric of the global financial markets is shifting as I write this. A new digital economy is emerging, and no central bank, federal reserve, or government has the power to shut it down. Distributed ledger technology, of which Bitcoin was the first, is here to stay. And it will impact your bank account, wallet, and investment portfolio sooner and more drastically than you think.
The same goes for many of the world’s leading financial institutions. I have spent years working on their technology systems and management plans. In the case of one global banking conglomerate, it took less time for Bitcoin to go from a few million to over $100 billion dollars than it took this firm to change the colours of a button in their mobile banking app. And these are the firms we are trusting with our money in a digital economy?
I’m not suggesting that banks are bad, I personally use a bank account daily — although they are rife with problems that customer service agents tell me are impossible to avoid, which may or may not always be the case. Nor am I suggesting you run out and buy Bitcoin, or any other ‘coin’ or ‘token’. (Full disclosure…I own zero cryptocurrency. The majority of the coins and tokens on the market today are not worth owning, and it scares me to see the lack of research people do before they make their buys.
I am suggesting however that you pay close attention. This is a steep learning curve, and in the information age, more than ever, knowledge is power. Our world is about to turn upside down. Capital, whether as underwritten digital assets or currencies, will flow freely in minutes across continents and planets.
In the very near future, you will see new cryptocurrency assets that are backed by real world assets, such as this Canadian real estate coin, with financial statements audited and signed over blockchain by a ‘Big 4’ accounting and consulting firm such as Deloitte, whose fintech presentation we are joining in coming week. Federal governments will issue bonds and treasury bills valued in their local fiat currencies via ICO, directly tapping into and gaining ‘buy in’ from the general public.
With this shift in the landscape of global capital markets comes an opportunity, not to invest in the hottest ICO tip, but to learn. To educate yourself. To prevent yourself from being one of the unfortunate individuals who will discover they are financially illiterate in the new digitally-distributed economy.
At that point, who will be “stupid”? The answer my friend, to life, the universe, and everything, may very well be 42.
Please feel free to comment, and let me know your thoughts. If I missed anything, or you noticed an error — feel free to reach out!
-M
