‘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NKB illustrate an overall message of struggle, for what seems to now be the outdated method of conducting token sales.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.

Notable Bitcoin Trader and Whale Not Bullish on the Hyperinflation Narrative

Colin Muller

Highly regarded Bitfinex trader and crypto whale J0E007 is not banking on the hyperinflation narrative, which is a highly popular notion in the cryptoasset industry, implying it's a fairy tale.

Screenshot from 2020-05-26 13-23-22.png(source: Bitfinex pulse)

This narrative, exhibited for example here, proposes that the aggressive fiscal and monetary intervention on the part of many central banks around the world will eventually lead to sharp devaluations in the values of many fiat currencies—and most importantly of the U.S. dollar.

Propagation of this concept of rampant fiat inflation in the cryptoasset space is generally tied to predictions of a huge increase in the price and/or market capitalization of Bitcoin and other cryptos, although most focus on the flagship cryptocurrency.

A Little More Complicated

In his post, JOE007 linked to a recent report from Alhambra Investments, an asset management and financial research outfit.

The report details lead analyst Jeffrey Snider’s view that the dollar is not going anywhere in terms of demand, although definitely not by virtue of the competence of the U.S. Federal Reserve in handling the unfolding economic crisis lit by COVID-19.

Conceptually, first, any strong desire to hold expensive dollar liquidity buffers is drawn from serious mistrust of systemic conditions – including the central bank’s place in them. If you thought Jay Powell well prepared in advance with effective countermeasures standing at the ready, buffers of any size need not apply.

Jeffrey P. Snider

In short, Snider contends that the Fed under chair Jay Powell has not responded appropriately to the emerging crisis with “effective countermeasures at the ready”; and this bungling in turn has led to a higher international demand for US dollars in order to sit on a larger and safer cushion of “expensive dollar liquidity buffers.”

A complicated subject, to say the least. The upshot for J0E007 being that the dollar-collapsing narrative may have some big holes in it—removing the keystone of that popular Bitcoin use-case narrative.

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