It is one thing when individual economists criticize cryptocurrencies and blockchains, as they can simply be lying, handing out lies as their own points of view. It is different when frankly fantastic statements are heard from regulators.
Thus, the recently appointed Deputy Governor of the Bank of Japan, Masayoshi Amamiya, believes that "cryptocurrency is rarely used in daily transactions, and also, for the most part, is a target for speculative investors." This is a statement that has nothing to do with reality when compared with the situation in Japan. Elvira Nabiullina, head of the Bank of Russia, is not embarrassed to criticize the ICO procedure, as according to her, from the very beginning the process of issuing tokens was not adequately protected against fraudsters.
In the U.S., the Securities and Exchange Commission (SEC) issued a memorandum in which it explained its reluctance to give the go-ahead to launch exchange-traded investment funds (ETF) based on Bitcoins "because it cannot prevent fraudulent activities and operations of speculators in the market." In addition, in preventing the launch of Bitcoin ETF, the SEC explains its step in a strange way by stating that the volume of demand for instruments that are not yet available is “insignificant.”
Demand for Bitcoin Is Growing
All the criticisms of the regulators contain an attempt at “labeling,” not paying attention to the fact that these labels will in no way correspond to reality. Meanwhile, as analyst Willy Woo said, the degree of fullness of the potential Bitcoin memory block has grown to a record 95 percent, while the amount of fees for transactions with the cryptocurrency has not increased. Moreover, if in 2017, when this indicator was equal to 85 percent, and the average commission size was $25, now the transaction fee has dropped to $0.10. It is logical that this attracts investors, and according to eToro's senior market analyst Mati Greenspan, since April there has been an increase in the load on the Bitcoin blockchain. And he makes the right conclusion, as he is allocating an additional 16 percent of his investment portfolio for the purchase of cryptocurrencies. He emphasizes that the volume of transactions with cryptocurrencies is now significantly higher than in January 2017, and only slightly less than the historically record high in January of this year. The purchase and sale of cryptocurrencies and their accumulation is already the daily use of crypto coins, which some do not wish to see. Not to mention using them either as a tool for making money transfers (as is the case with Ripple platforms), or directly as a means of payment.
2018 Is the Year of Record Success for ICOs
The ICO procedure has become a vivid symbol of the success of cryptocurrencies even though the regulators look at it with suspicion in most countries. And they do so wrongfully. The investors are voting with their money for the development of ICOs, as this is a less expensive procedure for raising funds than an IPO. According to PricewaterhouseCoopers, at least one million dollars in expenditures were required to launch 83 percent of IPOs in the world. A quality ICO costs a lot nowadays, but there is still a choice, it is possible to carry out the placement of tokens on a budget.
The success of ICOs is confirmed by the statistics of fundraising. According to Autonomous Research, if last year $7 billion was invested in new tokens, in an incomplete current year it is already $12 billion. A similar study of the market by another company, Fabric Ventures, gave a similar result of $12.6 billion of funds raised from January to September of the current year. At the same time over the past year, according to CoinSchedule, $6.56 billion was invested in ICOs. By the way, the largest growth in investments in ICOs was given by Europe this year, with its classic and restrained approach to investing in new assets.
Tokens as Stocks: Growth Is Sustainable in the Long Run
Even the obvious trend in the growing popularity of ICOs cannot stop the critics. The report of the auditing company Ernst & Young found alleged evidence of the unreliability of this procedure, as 86 percent of new tokens now cost less than during the initial sale. At the same time, the analysts could not pass by the fact that, compared with the end of last year, the number of ICOs, which have either a finished product or its prototype, increased by 15 percent. But if the tokens are cheaper, is that a failure? No, no. For example, Apple’s shares lost more than 80 percent of their prices 10 years after placement compared to the maximum value, and only 21 years later they were able to grow from the rate of $0.44 to $220, that is, rise by 500 times. It is not clear why Ernst & Young does not want to apply the same logic to the price of tokens.
ICOs as IPOs, Only Better
All the alleged “minuses” of the ICOs are actually lesser than those of the IPOs. With ICOs, for example, the issue of underpricing is less acute, that is, situations where tokens are sold much cheaper than they could have been. Given that tokens have more functionality than stocks, investors are much more interested in them. There are common nuances for IPOs and ICOs, as the authors of “Thinking, Fast and Slow,” Daniel Kahneman and Amos Tversky wrote. If securities receive significant positive media coverage bordering on hype prior to placement, then within two years after their sales, they are likely to experience a downward correction. The success of an IPO, and therefore an ICO, is largely determined by a successfully chosen date. The study also shows that there has been a marked increase in such projects that are long-term in nature, so the example with Apple shares is typical. Moreover, in countries with developing economies, IPOs can increase by 60 percent on the first day of placement, and this is not surprising. However, if it happens during an ICO, it raises a wave of “speculative” talk about the token release procedure. Moreover, the ICO also has the right, like an IPO, to pursue not only the goal of financing a project to implement ideas. As the researchers note, IPOs (and therefore ICOs) can be used “to disseminate information about the project and ensure its transparency through publicity”.
Blockchain Can Swallow up Wall Street
Obviously, the talk that “something is not right” with ICOs does not have any basis. The critics of the launch of new tokens would be interested to learn that tokenization is based on really enormous opportunities to increase the capacities of the blockchain. DTCC, together with Accenture and R3, proved empirically that a test blockchain is able to withstand the processing load of operations that exceeds the peak moments of the maximum volume of transactions on Wall Street. This is an unequivocal message to traders, as all securities trading can be easily transferred to the blockchain. This means that new standards will be set for the transparency of the trading business, which will completely exclude the possibility of financial pyramids, such as those of Bernie Madoff, who for several years conducted speculative operations with securities and was recognized by the court as a fraud, though the SEC had noticed nothing. Just as it "does not notice" the speculative nature of current securities trading. As recounted by a Wall Street old-timer, ex-banker of JPMorgan, and head of analytics at Fundstrat Global Advisors Tom Lee, in general, the volume of speculative trading is 240 times higher than the volume of transactions with real delivery. In particular, the “least” speculative deals are with oil and gold, where for every U.S. dollar of real supply there is $40 of “paper” asset trading, a practice that will not benefit the crypto market if it is integrated with institutional investors according to Wall Street principles. And, by the way, despite all these attempts to inflate "financial bubbles," the profitability of ETFs focused on shares of American corporations has only gone up three percent since the beginning of the year.
Blockchain and Cryptocurrencies Cannot Be Separated from Each Other
In the same way, the regulators “do not notice” that there are obvious advantages of cryptocurrencies over fiat. But it is clear that digital payments, which are much more convenient than even contactless transactions using mobile devices, are currently the most comfortable way of organizing the "business language" of transactions. The blockchain, which provides absolute transparency of transactions, becomes the guarantor of the trend to reduce the use of cryptocurrencies for criminal purposes, something that cannot be said of fiat. Trying to separate the apparently excellent properties of the blockchain from the supposedly “dubious” cryptocurrencies is meaningless. As George Kikvadze, vice president of Bitfury, stresses, it’s like trying to separate the internet from TCP/IP.
CFTC: Better to Lose First Place in Innovation Than to Believe in Cryptocurrencies
The obvious successes of ICOs, blockchain, and cryptocurrencies are "not visible" to regulators, even in the U.S.A. and Japan, the largest in terms of turnover of crypto coin markets. Why does Christopher Giancarlo, head of the Commodity Futures Trading Commission (CFTC), have such ease in stating that he is sure that the United States will not be the leader in the blockchain and cryptocurrency industry, and that “the American economy cannot lead in everything?” Such capitulation, and in fact the reluctance of either the CFTC or the SEC to accept new developments, which was clearly shown in a recent study by Yahoo Finance, means that the regulators do not know what to do in a situation where financial technologies that have a decentralization feature can transform the entire world economic order with their potential. IPOs can be replaced by ICOs, and banks and other financial intermediaries can disappear.
The Central Banks Are Missing the Chance
Meanwhile, we can agree with Anthony Pompliano, who believes that “The first central bank to fully embrace Bitcoin will have a significant advantage in the next 100 years. Fighting a technology evolution is never a wise decision.” While central banks and other financial market regulators are stomping grounds and trying to "make cryptocurrencies mature" with the help of institutional investors, as Giancarlo says, the institutional investors are correlating with cryptocurrencies in the same way as a horse harness with a car. Different speeds and different levels of security leave no doubts about who will win the race in the long run.