‘Transformation’ in Token Sale Market, Result of ‘Major Setbacks’: NKB Group

Colin Muller

The unregulated promised land of initial coin offerings (ICOs) is giving way to an investment landscape full of legal and regulated security, “and even equity” tokens, according to a report by NKB Group, a London-based a cryptoasset investment firm. The report is an extensive overview on the state of digital token offerings.

NKB illustrate an overall message of struggle, for what seems to now be the outdated method of conducting token sales. Throughout 2018, ICO sales have done progressively worse, far from the 2017 bonanza, from a $1.7 billion peak in March to $287 million raised in November. The average amount of funds raised per offering, as well as the number of offerings, are also both way down. NKB chalk this up to “weaker market conditions and uncertain regulatory status around offerings.”

nkbOfferings.png(source: NKB Group)

Increased professionalization is the name of the game. NKB comment that:

The transformation of token offerings from retail-focused ICOs to accredited investor focused Security Token Offerings (STOs) has reduced the potential investor base for projects, while professional investors take a more in-depth view of projects looking for financing. Higher quality projects passing through better selection processes will be the result of this.

NKB Group report

The Stymied US Market

One of the driving factors of change in the token offering market is the cool atmosphere of US regulators toward the industry. Virtually any offering now stands a good chance of being considered a security by the US Securities and Exchange Commission (SEC).

At the same time, a large portion of funding has come from the US throughout the ICO lifespan - which observation is also corroborated a similar report from Outlier Ventures. The result is that a sizable portion of the potential US investor pool, namely the retail investors - those who are still around after a year of eye-watering losses - are mostly cut out of the game.

The SEC has recently been checked in its campaign to prosecute what it sees as unauthorized sellers of securities during token sales. But it also controversially forced the founder of ERC-20 exchange EtherDelta, Zachary Coburn, to pay $400,000 in fines in order to avoid prosecution for operating an illegal securities exchange. NKB also cite this event as a reason for the slowdown in token markets.

All of this is propelling the investing side of the cryptoasset industry toward a far more familiar and elite looking landscape, albeit perhaps much more efficient than before owing to blockchain and/or distributed ledger technology. The longevity of the ICO model is now widely doubted.

But still, the possibilities of asset ownership - even if professionalized - still look to change dramatically. One of the more interesting anecdotes from the report, exhibiting a union of old and new, was the tokenization of a 300-ish year old Stradivarius violin, valued at $9 million.

Galaxy Digital Launches Bitcoin Funds With Bakkt and Fidelity as Custodians

Michael Novogratz’s crypto-focused investment firm Galaxy Digital has launched two bitcoin funds that will see both Bakkt and Fidelity Digital Assets act as custodians.

According to a press release the two funds are the Galaxy Bitcoin Fund, which requires a minimum investment of $25,000 with optional quarterly redemptions, and the Galaxy Institutional Bitcoin Fund, which requires a higher minimum investment and has weekly liquidity.

The document details Bloomberg will be the price agent for the funds while other service providers include Ernst & Young for tax, Davis Polk & Wardwell for legal counsel, and Deloitte & Touche for auditing. The funds’ custodians, as mentioned, will be Bakkt and Fidelity Digital Assets.

Kelly Loeffler, Bakkt’s CEO, said in the press release:

The Bakkt Warehouse was designed to offer institutional-grade custody in safeguarding digital assets and to support the development of the market alongside products like the Galaxy Bitcoin Funds.

Bakkt Warehouse, as CryptoGlobe reported earlier this month, has been offering its Bitcoin custody service to all institutions and not just those trading the Bakkt Bitcoin Futures contracts. This after receiving permission from the New York Department of Financial Services (NYDFS) to offer the service to institutions that aren’t interested in Bakkt’s BTC futures.

Both of Galaxy Digital’s funds will be passively managed, which means the allocations to Bitcoin are automatically selected. The products add to others offered by the crypto investment firm, including the Galaxy Crypto Index Fund, which provides investors with exposure to the largest cryptoasset by market cap.

Featured image via Unsplash.