A ONCE IN MANY CENTURIES MARKET — CRYPTOCURRENCIES AND INITIAL COIN OFFERINGS

I was at Goldman Sachs in the 1990s, which was a very exciting time.  In that period the market saw this fascinating phenomenon called the Internet take the markets by storm.  Goldman was in the thick of it, taking public some pioneering companies such as America Online, Yahoo and Netscape.  However, as exciting a time as that was–it is nothing compared to what I am observing with the cryptocurrency markets and Initial Coin Offerings.

Strangely enough, it was the realization of this 1990’s Internet boom that made the existing cryptocurrency boom possible.  Cryptocurrency had been conceptualized since the 1960’s, however its problems and limitations were not broadly solved until first, the existence of the Internet, and secondly the brilliance of Bitcoin founder, Satoshi Nakamoto,  and his 9-page whitepaper.

Thus, if you really think about it, the current fiat currency markets have literally developed over many, many centuries with each currency finding its place in the world economy.  The bond and equity markets have been mature, in their current form, for at least a century.  However, the cryptocurrency market is extremely young – not even 8 years old!   That youth and rawness of market leads to tremendous opportunity.  By now, most people have heard (and cringed) about the fact that $100 invested in Bitcoin in 2010 would now be worth in excess of $100 million.  This is an indication of just how powerful the growth of a truly new market is.

Think you missed the boat?  Think again.  As recently as 2014, Ethereum was launched through an Initial Coin Offering.  In August of 2015 it was trading as low as  75 cents per unit of Ether and less than 2 years later in June of 2017 it had topped $373 per unit of Ether!!!

You may be surprised to learn that there are currently over 850 cryptocurrencies trading right now.  You can find such creatively named coins as “NEO”, “Monero”, “Litecoin” and “Dash”.  So, we have gone from no cryptocurrency to over 850 in just 8 years!  This may sound like the market is overcrowded.  However, to put the size of the  cryptocurrency market in perspective, today, all digital currencies traded $5.4 billion in total volume.  Comparatively, traditional fiat currency markets trade an average of $5.3 trillion per day!  The traditional currency markets are still one thousand times as large as the digital currency markets!  Isn’t it reasonable to assume that as cryptocurrencies continue to gain traction they will nab their share of this $5.3 trillion per day?  Even a small percentage grab of the fiat currency market will translate to a many fold increase in the size of the cryptocurrency market.  Additionally, currently, only 1 billion of over 7 billion people on earth have a bank account.  Isn’t it also reasonable to assume that since cryptocurrencies will reach far more people than traditional currency markets (since cryptocurrencies don’t require a bank account) that the overall market for all currencies (crypto and fiat combined) will increase?

Now, how are new cryptocurrencies created?  Please say hello to the Initial Coin Offering or “ICO”.   An ICO is where a company creates a new currency or “coin” that is exchanged for one of the more popular cryptocurrencies like Bitcoin or Ether.  The newly issued coin or “token” itself has some utility and can be used for some exchangeable good or service in the marketplace.   The more confidence the marketplace has in that token’s utility or future utility, the more they are willing to exchange for that token.  This describes the recent meteoric rise of Bitcoin.  It is becoming more and more mainstream – and therefore confidence in its utility is rising rapidly.

ICOs have been around since 2013, but in 2017 they are changing ALL the rules of traditional capital raising.   In early August of this year, ICOs outstripped traditional venture capital in terms of total year-to-date capital raised.  It is not hard to see the draw for an entrepreneur:  significant, significant amounts of capital, little or no equity give up, no relinquishment of board seats, and limited regulation.  And how about the room for growth for the entrepreneur?  While, as noted above there are only 850 cryptocurrencies extant today– there are currently approximately 15,000 public companies in the United States alone.

Those interested in participating in the cryptocurrency market, will also find a refreshing degree of liquidity.   Anyone who has played the over the counter markets in stocks has been frustrated by the maddening lack of liquidity.  For example, today, OTCmarkets.com traded a grand total of $714 million in volume across 10,364 securities and today’s NASDAQ total volume was $1.5 billion.  Combined, these two equity markets traded about $2.4 billion in volume for the day.  Compare this to the daily $5.4 billion cryptocurrency volume– and you can see that a relatively small pool of tokens produces a far superior daily liquidity compared to a much larger pool of stocks.

Are you starting to see what I’m seeing?  We are right in the midst of a very rare event.  The birth of an entirely new market that is disrupting both a centuries old currency market and turning traditional equity markets on their head!

Recommended for Further Reading and Research:

For a basic, but powerful understanding of how Bitcoin and the blockchain work, I would highly recommend: Mastering Bitcoin, by Andreas M. Antonopoulos (1st 3 chapters only)

To understand cryptocurrency’s overall impact on the world, I also highly recommend the same author’s follow-up book: The Internet of Money.

To research, and get yourself familiar with the myriad and fascinating cryptocurrencies out there, I highly recommend the website:

http://www.coinmarketcap.com

Good Hunting!

-Scott

 

 

 

 

 

 

 

 

 

 

 

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