ICOs: A brave new world

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ICOs, or “Initial Coin Offerings”, are a recent phenomenon that provide a new way for companies to raise finance using cryptocoins. They are named after IPOs. They are similar in nature, but the distinguishing factor is that whilst IPOs normally happen long after a company has proven its ability to make money, almost all ICOs to date are for businesses that have barely shown proof-of-concept, let alone generated revenue streams.

ICOs are raising serious money…

When Tezos ICO’d in July, it raised $232 million. However, there‚Äôs worry that investors are being given valueless tokens in exchange for their cash. That being said, the short-term returns from some of these ICOs have far exceeded any other market. This has driven demand higher.

ERC20 tokens lead the way

The cryptocurrency Ethereum has proven the most popular means by which new businesses choose to offer new cryptocoins. These are known as ERC20 tokens and can be traded over the Ethereum blockchain. Examples include TenX, a token designed to enable cryptocoin debit card payments, BAT, a token to fund digital advertisements and Melon, a token for the asset management industry.

Are we heading into a bubble?

The value of all cryptocoins and tokens in existence is approximately $135 billion. Compared to the value of Apple stock, which is worth $775 billion, it sounds undervalued, but then blockchains are not generating $70 billion in earnings a year.

And unlike shares, they don’t pay dividends nor confer ownership of businesses. So the jury’s out on valuation.

 

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