What Crypto Bear Market? ICOs Raising Billions

Equity capital markets professionals like to talk about “IPO windows” – the unique periods of time when stock investors will be most receptive to initial public offerings. To their thinking, the IPO window is most open when:

  • Stock prices generally are rising
  • Asset managers are seeing new inflows of investor money
  • The stocks of companies similar to the IPO candidate are doing well and sport healthy valuations
  • Recent IPOs of similar companies were oversubscribed and traded well in the aftermarket

As with so many things, the crypto currency market doesn’t play by the rules of traditional finance. You’d think that 2018, marked by sliding prices for bitcoin, ethereum, and other major assets in the space, would be a terrible time to dream up and issue new cryptos. History shows this to be the case in IPO land; 2008 saw just 31 IPOs, where 2004 to 2007 had over 200 per year.

But just consider EOS, which completed a year-long Initial Coin Offering (ICO) this June that raised $4 billion. The goal of the project is to build a system-of-systems, allowing developers to have secure, decentralized app hosting, smart contract capability, and decentralized storage. We think of it as cloud storage, but instead of running on Amazon or Google servers, EOS lives across its user base. If you want access, you need EOS coins to buy capacity.

EOS is the largest ICO to date, but it has performed poorly since June, down 50% from $12 to $6. Not a surprise given overall market conditions, but this hasn’t seemed to dull investor interest in ICOs. We pulled a few recent news stories that tell the tale:

#1. From a Bloomberg review of the ICO market, dated August 7th:

  • Initial Coin Offerings have raised $18 billion this year, almost 5x last year’s total.
  • Wealthy “accredited” investors are increasingly the go-to source of funds rather than public sales to “retail”. This is due to increased regulatory scrutiny and accompanying legal fees.
  • Other important sources of capital: VCs, family offices, and crypto-focused hedge funds.

Read more here: https://www.bloomberg.com/news/articles/2018-08-08/token-sales-turn-exclusive-as-private-investors-snatch-up-deals

#2. From a Cointelegraph article today outlining the findings of a recent study by research firm ICORatings:

  • Second quarter 2018 saw ICO funding accelerating from first quarter levels by over 200%.
  • While Europe leads in terms of launched projects at 46% of total in 2018, a majority (65%) of capital funding goes to North American based ICOs.
  • In terms of what industries successful ICO offerings mostly target, over $1 billion of funds raised have gone to financial services, blockchain infrastructure, and banking/payments each. Yes, each…
  • The ICORatings report agrees with the Bloomberg reporting that accredited and institutional investors represent an increasing percentage of ICO investment.

Read more here, including a link to the full report: https://cointelegraph.com/news/study-ico-market-doubled-since-last-year-shows-increased-institutional-investment

#3. Even if you never touch a crypto currency in your entire life, ICOs and cryptos are still something you should understand. Why? Because: they are a novel way for public companies to raise capital without diluting current shareholders. So far we can only think of one example, but it is a high profile one: online retailer Overstock (symbol OSTK). They recently completed a $134 million ICO and also just received $270 million in funding from a Chinese private equity firm to build out an exchange for crypto currencies.

Read more here: https://www.forbes.com/sites/sarahhansen/2018/08/09/overstock-blockchain-subsidiary-tzero-raises-134-million-in-ico/#5472c04462cf

Summing up: the success of ICO fundraising in 2018 is a rare bright spot for crypto currencies, and all the more surprising because the underlying assets continue to struggle. While we remain cautious on bitcoin and crypto currencies generally, this is an impressive display of investor confidence in this new asset class.

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