Initial Coin Offering Could Change How We Invest

Source: Unsplash Stock Images

Blockchain Technology in Equity Capital Market

Imagine yourself running a business, intending to raise capital with equity but your business is not big enough to issue an initial public offering (IPO), not small enough to secure angel investor’s funding. You are stuck at the middle ground with a desire to issue shares, but direct listing remains as an unattractive option since it’s too irregulated and it would be difficult to move on to public stock exchange afterwards. In three to five years, it may no longer be a problem because business can soon establish Initial-Coin Offerings (“Syngum” 2019) — to have a mini exchange with cryptocurrency representing your share at the company. With flexibility towards local international investors and will be regulated by digital fiat-backed digital bank.

The Symptoms of being too Regulated

Stock Exchanges such as The Toronto/New York/London/Hong Kong Stock Exchange, have been norm for equity investment where all the biggest fortune are listed at one place because of the highly regulated safe environment. For example, The New York Stock Exchange, with a market capitalization of 2.6974 trillion, is regulated by the U.S. Securities and Exchange Commission (SEC). It has regular filings and standard accounting practices in place that have furnished fair investing opportunities nationwide (“NYSE Exchange Proprietary Market Data” 2019).

Source: Unsplash Stock Image

IPO vs Direct Listing

The cost structure of getting listed on a stock exchange is ridiculously high because the middle person charges 2–8% of the market capitalization of the company at the intended selling price and it takes over 12–16 months from readiness planning to IPO. Nonetheless, obligating to regulation like quarterly fillings and public accounting practices have cost company a sizable amount of cash. According to PwC IPO Report in 2018, 64% of the US Public Companies have spent overall a billion-dollar at IPO fiscal year at private auditing, financial reporting, and legal services(“2019 US Capital Markets” 2019).

What’d Investors/Management Have to Say About ICOs?

How are we going to adapt to this changing landscape? And who? Digital banks are able to, digital banks stand as the perfect financial institutions to execute and be the middleman between SMEs and investors. Through issuing Initial Coin Offering (ICO), by hard-coding shares with blockchain technology, shares can be distributed in a form like coins with a specific identification number that is traceable and transferable — just like shares. They are backed with fiat currency just like dollars and prices are set by bid/ask volumes. Essentially works the exact same as most crowdfunding platform but the return of investment has just changed from a physical product/monetary vouches to a share of the company.

Source: Sygnum.com

How Far Has ICOs Gotten To?

On August 31, Syngum, the world’s first digital asset bank was established in Singapore and the financial landscape is started transforming in the capital markets industry. Its capability to operate a mid-market high volume trading platform is mainly due to the advanced blockchain technology. The faster real-time gross settlement process and traceable records helped developing consumer trust and eventually creates a more investor and corporate-friendly investing circumstance.

Future trends to look for

A few years from now, we might be able to witness sales & trading jobs are getting automated growing mergers & acquisition activities. These are the catalysts of an emerging shares exchange platform for cryptocurrency to take place with advanced blockchain technology. We shall take a minute to think about what is the implication behind giving general investors access to private companies towards different stakeholders. Private equity/venture capitalist might have to complete with general public for company’s shares, startups will be able to raise capital at a much cheaper and safer way, management might get less pressure from shareholders due to loosen regulation etc.

References

2019. Mckinsey.Com. https://www.mckinsey.com/~/media/McKinsey/Industries/Private%20Equity%20and%20Principal%20Investors/Our%20Insights/Private%20markets%20come%20of%20age/Private-markets-come-of-age-McKinsey-Global-Private-Markets-Review-2019-vF.ashx.

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