It was sometime in November 2017, one Saturday afternoon my buddies and I were out having lunch, and all we talked about was what new ICOs were coming up and how to split Ethereum capital among the elite group of ICOs coming up this holiday. We talked for a couple of hours and arrived at a distinct but relative groupings; each with his special interest. Well as usual, I picked the infrastructural and finance category and held up my trust-pole for a couple of upcoming bright looking token sales.
Later that evening I sat outside my porch wondering how much impact blockchain enterprise – cryptocurrencies and their derivative initial coin offering activities have made on Venture Capital.
Cryptocurrencies are completely virtual, or even the knowledge of it seem rather abstract and it makes almost no sense for top executives of investment firms and hedge fund managers to show interest at all and drive up their investment portfolios with digitalized assets which provide no particular securities like the regular vaults in banks, or the potential 5-star hotel in Miami beach, or even natural resources like gold which has lost its peculiar attraction. However, until they are translated into real-world assets, or fiat currencies, the mind-boggling blockchain system has drawn virtually every class of investor into the vortex of the next-generation technology.
While we may have been waiting for artificial intelligence to overrun our economy or what’s left of it; or for some of us who still believe in the conspiracy of Skynet invasion; – the profit margins are quite the leveraging consequence of cryptocurrency investment.
Looking beyond the development chart of cryptocurrency evolution, the price index, the profit margins, the market capitalization, the growth potential and the global acceptance of blockchain technology – all are smokescreen to the true nature of capital investment. The blockchain enterprise has magnificently united a global economy and paved way for the development of a world-scale financial gradient, giving rise to different classes or types of investors.
Here, I would attempt to divide the entire lump into five basic categories and further classify the categories based on investment function and purpose.
Firstly, there are two broad classes of investment: – Digital Assets and Real-World Assets.
On the third wheel are those who dabble in-between, – this could be considered the class to which all ICO investors fall under. This is so because tokenization is becoming a new way for converting physical or even abstract assets into digital forms by exploiting the technology of the blockchain network.
Basically, what Decentralized Ledger Technology offers is not so much different from the internet scope; a global-wide access to transactional block of information stored on different nodes across multiple systems. So technically every investor who is a blockchain enthusiast can participate in any ICO of his choice. However, with the unregulated nature of token sale activities, jurisdictional limitations make it quite inconvenient for certain investors and eventually limiting participatory range.
This group can therefore be further divided into those who can and the ones who can’t; – in other words, Free and Subjective Investors. The pool of ‘free’ investors is getting slimmer by the day, as most jurisdictions are considering regulatory procedures to standardize blockchain affairs. Hence, ICOs may be gaining prominence, but leash on participatory roles are becoming tighter.
Generally, seed money to start any new business venture can be gotten from bank loans, angel supporter or venture capitalists, peer-to-peer lenders and often time from personal sponsors (family and friends).
At the core of the system, ICOs have high risks, although commensurate to high return on investment; and the unregulated nature makes banks at this current time have no involvement in the practice of token crowd sales. While some banks may admire the robustness of the blockchain technology and admit the advent of digital based real-world backed assets plus cryptocurrencies are timely, they have an unreserved discontent with the decentralization of financial and economic power delegated to them.
Angel investors have been remarkably drawn to this venture by default. Once the right margins are set, they have a de facto sense for locating start-up cryptocurrency enterprises.
Venture capitalists have for a long time been regulars at the table of traditional crowdfunding and IPO events. They seek maximum return on investment by locating business potentials with huge promising market values and would strive to stake in that enterprise.
Given that there are institutions and individuals who make up the cryptosphere, the categories of investors who influence trade markets are a gradient of block-shares. In other words, like the traditional IPO system, conventional ICO promoter has one of the following characteristics:
‘Bitcoin Whales’: this is a term associated with institutions or individuals with large market shares in the cryptocurrency world. They would include those with thousands, tens of thousands, hundreds of thousands and even million(s) of bitcoins and few changes of altcoins in their treasury or personal wallet accounts. The Pantera Capital, Bitcoins Reserve, Binary Financial, Coin Capital Partners, Falcon Global Capital, Fortress, Bitcoin Investment Trust, Global Advisors Bitcoin, Investment Fund, Bitcoin Index Fund and many more whose identity may not even be known.
‘Small fries’: well, as you guessed that would include every other bitcoin or altcoin holder in the cryptosphere.
Short-term: this type of investor is tagged the hit and run. They look for projects with bonus investment opportunities and invest, only to liquidate once the tokens hit the exchange markets. They are often associated with intolerance for short term volatility, hence their need to liquidate assets as often and quick as possible.
Mid-term: this type holds their investment stakes for a longer period of time to make extra sizable return on investment. The usually target 2x, 5x or even as much as 10x return on investment.
Long-term: here, we have those categories of investors who have chosen to believe in the project or have a large amount invested in the altcoin and are waiting for it to reach a 100x ROI value before liquidating or are simply just hodl (holding whether the project is booming or diving). This group of supporters comprise those who have a high degree of tolerance for short term volatility and are about to hold their coins / tokens for longer periods of time regardless of inflation or market capitalization.
While the nature of a particular financier can crosslink many characteristics mentioned above, blockchain enthusiasts are the most ventured in this enterprise. Natural token buyers and speculators are increasing within the crypto-community. While some may be exclusive on how they distribute their investment portfolio; others go with the flow with market assays and hypothesis.
Finally, on the issue of jurisdiction; regulation of ICO has to some extent undermined the ideology of a decentralized ledger system. Meanwhile, while anyone anywhere can access and bear witness to transactional blocks on the blockchain, to start-up an enterprise requiring the use of DLT isn’t a small feat. In fact, access to finance has in most cases been an acclivitous challenge.
Unlike the counterpart IPO, initial coin offerings do not have a legalized procedure on how to issue tokens to the public, other than the smart contract protocol, there isn’t much to trust than the landing page of most ICOs.
Even the disclaimer information on most whitepapers and websites of ICOs make it even more risky for token buyers. This has in the past given rise to numerous counterproductive token sale activities. Now, among other jurisdictions, US citizens cannot take part in token crowd sale events because of securities guised as tokens. China has long banned ICOs and cryptocurrency exchange market operations within its jurisdiction.
While other nations may consider it an economic opportunity, they have not ruled out regulatory standards. Therefore, only countries that either are indifferent to token sales or out-rightly support the events give their citizens the flexibility to participate in ICOs.
Although, there is a special case of accredited investors, which comprise any individual who has a net worth of over $1m or has an annual income of $200,000 minimum; such an individual can invest in unregistered securities with the SEC as contained in Regulation D. As long as ICO tokens fall under the criteria of securities, only accredited investors can participate.