The ICO Market is Maturing
It will probably never be the same “sweet” 2017 market, when anyone could make 5x investment in a matter of few months. There are several reasons for that.
Despite lower prices, the cryptocurrency market seems to be maturing. Fewer retail investors and more venture capitalists have been allocating their wealth into ICO’s, sub-par projects can no longer make a name for themselves in the space, and the Securities Exchange Commission (SEC) has been putting their foot down on companies and individuals breaking their laws.
Less Money, More Maturity
Although less money has been entering the cryptocurrency market in the short term — for example, in September 2018, ICO’s raised $164 million total — 89% less than the $1.5 billion raised in January 2018 — this could be a sign that the industry is maturing and that the population is not mindlessly investing like they were at one point in time. Both retail and institutional investors are being more thoughtful when it comes to investing in projects.
The graph above tells us that as the hype from “crypto-mania” died down, so did the funds invested in ICO’s. Retail investors most likely played a significant role in this decline. Once retail investors realized that they could no longer make an investment in any digital asset and watch their money double overnight, the mindless investing came to an end. After being burned in what some call “crypto-mania,” it’s possible that losing a large amount of money caused retail investors to become hesitant about investing in cryptocurrencies. A report by Diar found that 70% of tokens are now valued at less than they were when they held their ICO and that the average token has dropped in price by about 90% from its all-time high.
When investors get burned in a market crash — they remember that burn in the following months and become hesitant to invest in again; this may be one of the reasons why ICO’s have been raising significantly less than they previously did, there are most likely fewer retail investors in the market than before.
Less money total, but more money from Venture Capital
Considering we are in a bear market that has been going on for nearly a year now, the fact that venture capital is investing more money into ICO’s might come as a surprise. According to Diar, in the first three quarters of 2018, Venture capitalists invested 280% more in ICO’s than they did in the previous year, and the median amount of money invested by these VC’s was $2.5 million.
But considering that a majority of the world is currently under-allocated when it comes to allocating wealth to a crypto portfolio and that institutions have been setting up platforms and services that allow other institutional investors to feel safer when investing in crypto, it shouldn’t be so surprising that venture capitalists are investing.
Services for Institutional Investors
It makes sense that venture capitalist and institutional investors want to get some skin in the game. Investing at a time like this — especially in a bear market — means that the potential returns could be significant. Services like Bakkt, which allows customers to buy, sell, store, and spend their crypto, and Fidelity, which offers custodianship and trading to institutional investors and hedge funds, are paving the way for more and more institutional investors to have a cryptocurrency portfolio.
Before services like Bakkt and Fidelity surfaced, there were concerns about cryptocurrency wallets and exchanges being hacked and investor funds being lost forever. Or fears that buying and selling cryptocurrency on exchanges might involve unregistered securities and the investor would be reprimanded at a later date. But with platforms being launched by trusted names in the world of banking and finance ( ICE and Fidelity Investment), that cater to professional investors and provide those investing with insurance and assurance that their crypto funds are safe, big money no longer has to worry about entering the space. Services like Bakkt and Fidelity allow investors to feel more comfortable and confident when entering the cryptocurrency market and are laying down the foundation for professional investors and institutions to provide cryptocurrency offerings to their clients
Better Products and Compliant Companies
Because more of the money entering the space is from institutional and professional investors, projects that are thinking about entering the space are going to have to be legitimate businesses with a good outlook, and projects that are currently in the space but aren’t compliant are going to have to do something and do it fast.
Professional investors are going to know when a project is bad, has a poor outlook, and is not worth investing in. As the cryptocurrency market has been maturing, so has the legislation around the industry. The SEC and the Commodities Future Trading Commission (CFTC) have been actively pursuing cases of fraud as well as ICO’s that have turned out to be scams.
For example, on September 27, the SEC charged international securities dealer 1broker for failing to transact their security-based swaps on a registered national exchange and failing to properly register as a security-based swap dealer. And recently, the CFTC ordered a firm to pay $2.5 million in fines for running a Ponzi scheme. Gelfman Blueprint Inc. promised it’s investors a 7–9% monthly return on Bitcoin investments, but was really using money from new investors to pay their previous investors. Securities that are unregistered and companies that are operating illegally can no longer thrive in the market. Events like fraudulent and illegal ICO’s have made investors — as well as regulatory agencies — weary about what projects can and cannot be invested in. The SEC and the CFTC are cracking down on fraudulent companies and exchanges, and if these businesses are not already compliant, they will continue to lose customers because their business, as well as their customers, could be in legal jeopardy.
Although this could put some companies and exchanges on shaky ground for a short period of time, it will be better for the market in the long run. Even with less money entering the space overall, the correction in the market was a step that needed to happen for the industry to mature. When values increase unproportional to the amount of activity occurring in the market, that should have been a sign of an unhealthy market. But thanks to the fall out of retail investors, the creation of services that allow hedge funds and institutional investors to confidently invest in the cryptocurrency market, and the legislation that is being enforced, cryptocurrency is continuing its journey through the technology adoption life-cycle, proving itself as a viable investment vehicle that will be here in the future.
For more information on digital assets, feel free to reach out to WhitePark Capital at vs@whitepark.capital, and be sure to check out our website www.whitepark.capital
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