Blockchain Startups are Driving the Growth of the Crypto Asset Market
Bitcoin’s volatile high price has brought attention to crypto asset market valuations. Less consideration were given to the important caracteristics of the technology behind it.
Blockchain technology has accelerated the creation of start ups by facilitating sourcing of open software for developers, while democratizing the funding process through ICO crowdfunding.
These blockchain based companies have incentive models that use tokens (such as Ether) to pay for their development work. These tokens have a value and can be traded for other digital coins (i.e. Bitcoin, Litecoin, etc) or fiat currencies, such as dollar in crypto asset exchanges
Funding Startups through Crowdfunding
Startups are typically funded by angels and venture capitalists (VC) using a well defined process that culminates in IPOs (Initial Public Offering). This process is very selective and only accredited investors can participate.
Here is a good example of a hypothetical startup going from idea to IPO.
Today, there is a new method of funding startups through what is called an Initial Coin Offerings or ICO. Anyone now can create their own tokens or crypto asset (Coin aka crypto currency) for others to invest in.
Here is a simple infographic of Four Years of ICO’s
What is Crowd Funding and Relationship to ICOs?
Crowdfunding permits average investors to participate in funding these new companies. Dollars are exchanged by tokens or coins to invest in the ICO. These coins are traded in the crypto asset market and the price reflects overall market sentiment and project news. About 1300 companies have being created already, and about 50 to 100, towards the end. Of 2017, were added each month by the ICO process.
Most Notable ICOs to Date
Blockchain Companies Value is Determined by the Crypto Asset Market
Crypto assets have two drivers as basis of value: utility and speculative. Utility value refer to what the blockchain software is used for, what does it do for the users? The speculative value is determined by the perceived future value of the coin. What do you think the value will be? The price of the asset is determined by the combination of the two, Utility Value + Speculative Value.
At a birth of a new COIN, what drives the initial value in the crypto market is the speculative value. There is not much knowledge about the actual value of the coin/token or startup (service/product) behind it. Over time, the Utility Value increases as demand for the service/product increases, and more tokens are paid by the users of the network. Hence, the Utility Value will become the dominant market driver of the Coin.
The crypto asset market is an early stage of development today. As of this post, January 20, 2018, there are a total of 1469 coins (920) and tokens (549) being traded in 75 exchanges across 7800+ markets worldwide with a capitalization value of $600+ Billion. The majority of these coins/tokens did not exist a year ago. The market is mostly unregulated with some exceptions depending of the country. Japan made Bitcoin a legal tender and approved 11 exchanges to trade crypto assets. The US approved three crypto exchanges and recently allowed tradng of Bitcoin futures in the capital market. China banned crypto trading and ICOs three month ago.
We believe the relative performance of the coins and tokens in the crypto asset market offers important lessons to develop strategies for this emerging market. BlockchainCLT will provide insight of the key trends shaping the market to assist blockchain start ups to succesfuly participate in this “Blockchain Revolution”.