2019 is expected to become the year of global changes and new opportunities in the cryptocurrency market. Many countries that have shown themselves to be the leaders in digital currencies are beginning to develop legislative frameworks for the industry, while the market players are looking for new strategies to develop their businesses through issuing security tokens and conducting Security Token Offerings. What are some of the advantages of these new solutions, and who might be interested in them?
Bitcoin at $19K, Ethereum at $1,300, crypto market capitalization over $800 billion: as hard as it is to believe these numbers right now, this was the reality just a year ago. Looking at the state of the crypto industry today, pessimists start prognosticating its inevitable and total demise, optimists dream of Bitcoin at $100K, and pragmatists just dive into books on economics and investing to try to find the real bottom to use to push up from.
I believe that the digital currency market is actually very close to this very bottom, and that the industry will be propelled up by the creation of a fully functional security tokens and STO markets. This will enable companies which previously had no way to secure funding, gain access to new resources; the convergence of blockchain technologies and legal regulation will lead to the development of new business models, and the market will gain a new flow of capital through the introduction of assets that have never before been available.
But let’s examine things one at a time.
Eliminate the Middleman
What’s the main problem faced by today’s stock markets? It is the fact that the sources of capital and its consumers are separated by a vast industry of middlemen. These people help conduct transactions all over the world, but their services are far from free. The expenditures for both parties may be labelled “commission,” “service fee,” “charge” or even “honorarium,” but it doesn’t change the essence: the traditional market players may be losing millions of dollars on transactions.
Blockchain technology and a shift towards security tokens solve this problem once and for all. The earlier, due to its very nature, eliminates middlemen from the process and essentially takes over their functions, thereby drastically cutting costs. The latter, thanks to the legal regulation, becomes a bridge of sorts for the digital currency holders to the world of physical assets and all that comes with them.
Would any of this be possible without blockchain and crypto technologies or with utility tokens? The answer is a resounding “no.”
Access to New Capital
The next extremely important point is that the introduction of security tokens may give great momentum to the global economy, and here’s why.
Thanks to digital currencies, a vast number of investors will gain access to venture business, all with the nearly instant financial returns. This is just not fathomable outside of the crypto space as investors who bought their shares in a venture fund have to wait 3-5 years until the so-called “liquidity event,” when the securities can finally be sold or traded for other assets. In the meantime, the company they invested in may be evolving and gaining in value, but the investors will only remain “paper millionaires” and will not see any real money until exits start.
Introduction of tokens and blockchain as the links in this chain removes nearly all wait times. You are welcome to wait 3-5 years until you exit from the project. But if you wish to make a profit or trade your assets in six months, that’s no problem either! As opposed to actual securities, which sit like deadweight for years, tokens start working much faster, enabling their holders to start trading or selling them.
This is particularly convenient and advantageous when investing in such interesting but previously unavailable assets as exclusive real estate, art, antiques, etc. Moreover, thanks to the crypto industry’s specific features, these assets break out of the niche market and become fully marketable goods that can be quickly and profitably sold and bought via tokens. The translates into high liquidity and brings to the global market massive inflow of capital which has never before been accessible.
Opportunities for Small and Medium-sized Businesses
There are plenty of young, promising “real life” startups on many domestic arenas that could hugely benefit from expanding into international markets. These could be restaurant and grocery chains, designer clothes brands, TV shows, delivery services, etc. that could be of great interest to consumers all over the world. However, their access to the global marketplace is hampered by the prohibitive cost of borrowed capital or the founders’ reluctance to part with a stake in their business in exchange for investments.
Why are we talking about non-technical startups, and what can they possibly gain from a foray into the blockchain field? The answer is very simple: these are all new, creative, successful companies which, although still relatively small, have great development potential on the international arena.
Each of them may at some point face a choice: do they wait a few years until they saved up enough money to invest in new product development or expansion, or do they force the process and try to pursue all their plans at once?
Clearly, the second scenario requires access to external financial resources. In the past, young ventures had only three choices to obtain funding: conduct an IPO – a process so incredibly expensive as to be beyond the modest means of small and medium-sized businesses; seek project financing (the same disadvantages as an IPO); or obtain a bank loan (read, sky-high interest for relatively small amount of funding).
But today, instead of these complex and costly models they can use one, perfectly legal solution: an STO – a Security Token Offering.
It is particularly important that this solution is universal and advantageous for both the investors and the companies working in virtually every industry. Let’s look at one example, real estate development. To build a new subdivision, a certain number of tokens could be issued that would give the developer the much needed funding while offering the investors future profits from each sold square foot of space in proportion to his or her token holding.
Another example: little boutique hotels which have no way to independently raise funds to expand or remodel could combine forces with other hotels, tokenize their assets, create a network-wide loyalty program, and enter the markets as a united front, thereby attracting the interest of major investors.
This solution is equally relevant for local, domestic, and international scene. If a pizza chain wishes to expand within their immediate area or city, it may issue tokens and offer its customers to back their project. Wherever the greatest number of tokens is bought, that’s where the new shop will open.
If a hotel chain is eager to enter the international market, it is welcome to do so: a completely decentralized, immense international crypto community will help it gain global recognition, opening entire new horizons for its development.
And the last but not the least. Although our examples are slightly oversimplified, and these opportunities come with their own nuances, the reality is that the security token market opens up incredible opportunities – and one of them is a lower entry thresholds for small-time investors and other people who may have been interested in supporting and making money off of interesting projects but have until now been apprehensive about the industry.
Democratization, transparency, vast opportunities, and access to new capital – these are just some of the advantages offered by the maturing crypto market. It will have no place for fly-by-night startups which raise millions in days only to disappear without a trace.
Neither will be the right place for those dreaming of $100K Bitcoins. So set aside your popcorn and start patiently and diligently studying: we’re entering a totally new and unbelievably exciting and promising stage in the crypto industry development.