Home » Economy » Initial Coin Offerings – How does a crypto "stock exchange" function? | News

Initial Coin Offerings – How does a crypto "stock exchange" function? | News

Wednesday, September 6th, 2017 | Economy

At the start of the week, the two biggest digital currencies – Bitcoin and Ethereum – suddenly suddenly lost their value. The Chinese supervisory authorities forbade Initial Coin Offerings (ICO) to collect money from start-ups from the crypto- and blockchain-scene in order to drive their business forward, and with which new cryptos are often created.
Thus, the Chinese authorities offset the established digital currencies. These are needed to finance such ICOs. In an ICO, a startup is called token (in other words, digital coins). Investors can buy these tokens with other Internet currencies such as Bitcoin. New cryptos with names such as OmiseGo, EOS or Iota are constantly being developed.
Even celebrities bet with
The clear response to the crypto market from last Monday shows the importance of this new kind of corporate finance. According to information from coinmarketcap.com, there are currently 866 digital currencies with a market capitalization of nearly 147 billion dollars (see chart at article end). As the German newsmagazine "Der Spiegel" writes, in the first six months more money has flowed through ICO into startups than through the conventional way of venture capital.
In addition to serious investors, virtual money procurement also attracts many speculators and other fortune-tellers. So more and more celebrities such as boxing champion Floyd Mayweather or footballer Luis Suarez are emerging as ICO investors. Their motive is rarely to influence a young company, as is the case with other financing methods.
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The most important part of the investor's imagination is the hope of quick profits. Partially right: If the interest of the investors is large, there are impressive returns. The currency OmiseGo, for example, rose from $ 0.5 to $ 12.40 between mid-July and early September. Or the deep case follows, as in the EOS project, a platform for decentralized apps. Although the EOS founder token has sold for 200 million dollars. However, their value has fallen sharply in the last few weeks. It seems that the market has now reached the opinion that EOS can not deliver its promises for the time being.
This shows the risks associated with ICO, which are not taken into account by many investors. Many people did not want to miss the ICO boom, but do not understand the underlying concepts, says Stefan Steiner from the startup initiative Venturelab. "The current hype is strongly reminiscent of the dotcom bubble." At that time, many investors lost their money because, in the general stock markets, they were betting on technology companies without marketable products.
Industry experts advise interested investors to be clear about their own goals. Many start-ups do not offer their co-ordination rights or their direct profit participation. The so-called "whitepaper" is important, in which a company announces its strategy, its objectives as well as its investment rules. Even if these documents often resemble a scientific work, they are central to investors. A good overview provides about the page tokendata.io.
Regulation lags behind the hype
Another factor of uncertainty is regulation. Unlike conventional exchanges, ICOs are hardly regulated in Switzerland, because investors are hardly entitled to rights. "The ICO wave simply rolled too fast for Swiss regulators," says Stefan Steiner. It is very probable that something will be done soon. "Clear rules are to be encouraged if they are startup-friendly and protect the investor."
In the US, the stock exchange supervisor SEC has already intervened regu- larly in cryptic investigations. The tokens of DAO were securities and therefore would be subject to the securities laws, the SEC wrote in a statement. The purpose of this regulation is to ensure that investors receive all the necessary information and are subject to regulatory supervision in the interests of investor protection.
Back to China: The central bank wrote in its recent ban ICO said they were "a kind of illegal public procurement of funds related to criminal activities such as fraud and snowball systems." Nevertheless, experts expect the ban to be temporary. Globally, supervisory authorities are having trouble understanding ICO and its risks. Now, China is taking time to deal with it in peace.

Martkkapitalisierug of all digital currencies in dollars, source: coinmarketcap.com (Stand 05.09.17)


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