This is the sixth in a series of articles sharing my thoughts about the entry of traditional finance into cryptocurrency markets. See the previous articles on this page and follow me on Medium to catch each new post.
Did you hear?
Blockstack’s ICO raised $23 million, including $15.5 million through the first-ever U.S.-approved public token sale.
With YouNow following in its footsteps, you can expect more blockchain businesses to follow the path to U.S. regulatory approval.
Tokens for dollars—no bitcoin needed.
After years of failed attempts, companies can finally raise money for new cryptocurrency projects that comply with U.S. laws. And when you buy those cryptocurrencies, you won’t risk your investments getting rekt by lawsuits.
This may seem like a boring, insignificant event, but it could change the nature of cryptocurrency in ways we can’t imagine. It’s also one more reason Binance’s move to the U.S. is so brilliant—and much more consequential than simple regulatory compliance.
FYI Blockstack’s offer has closed, but you can still participate in YouNow’s token sale on this website: YouNow Props Project Website.
Power to the people?
Kudos to U.S. Securities and Exchange Commission (SEC) for financial innovation. While it will need to clarify some details of its decision, it finally created a legal way to bring ICOs to the public.
Using Regulation A+, businesses can sell tokens to anybody, even those who do not fit SEC’s definition of accredited investor. Instead of getting shares in the companies, investors will get tokens. Everybody can participate.
It’s a whole new paradigm. Exciting!
But unless you’re an expert in Regulation A+ and connected to everybody who would ever give you money, you need a broker or backer—almost always a Wall Street firm or a crowdfunding platform connected to Wall Street.
While this makes a lot of sense, it also gives Wall Street an interest in ICOs.
More specifically, an interest in making money from ICOs.
ICOs are Dead. Long live ICOs!
Does it seem odd that Wall Street would care about ICOs?
In 2017, it called them scams. Worse than bitcoin. Even now, many ICOs are stuck in lawsuits, some have paid millions in damages, and a few ICO leaders sit in jail. Many have failed.
Yet only now does Wall Street get in the game?
It’s all about opportunity.
In 2017, Wall Street had no way to make money from ICOs.
A bunch of scammers and a few legitimate businesses posted whitepapers and wallet addresses on the internet and made a shit-ton of money. Nobody knew what was legal or not. None of the ICOs had to register with anybody. A new ICO popped up seemingly every day. And they were all private, beyond the reach of the professional money-makers.
How could Wall Street get a cut of that action?
Thanks to the SEC, Wall Street now has a safe, U.S.-regulated way to make money off of new token offerings. It can market them as SEC-compliant, fully vetted start-ups that offer tantalizing opportunities and novel technology with massive potential.
When you consider the perceived drop in IPOs and a never-ending stream of successful companies choosing to stay private for longer, ICOs come at a very opportune time. New businesses simply aren’t going public like they used to, but crypto is booming.
Nobody makes a commission from a company that stays private.
Flipping an ICO? Could bring in a few bucks, maybe. At least until SEC approves a bitcoin ETF.
Buy the next bitcoin!
Why would an ICO use Wall Street when it can take its sale directly to the public? Especially when Binance has its own platform and U.S. doesn’t have the friendliest crypto rules.
Wall Street offers some advantages.
It connects ICOs to regulators, networks of investors, and the general public. It has lawyers, consultants, advisors, and experts to support any new venture. It’s easier to get support, approval, and exposure for your projects when you have these insiders and professionals on your team.
Also, Wall Street controls about a quarter of the world’s wealth, mostly through banks and investment institutions that hold money and assets on behalf of pensions, households, annuity companies, endowments, and others. Without Wall Street’s backing, ICOs have a tough time getting access to that money.
On top of that, Wall Street’s involvement cuts a lot of risks. It’s hard to structure an ICO that fits U.S. rules. If you screw up, you risk getting sued or shut down. Wall Street will try its best to make sure that doesn’t happen.
Meanwhile, Wall Street gets to make money and advertise a chance to buy the next bitcoin (at least, a chance to make people think they’re buying the next bitcoin).
Wall Street’s big move or last stand?
Cryptocurrency has one key advantage over private equity and stocks:
Anybody can create, distribute, and exchange it any time, any place, with anybody they want, instantly and with certainty both sides get the result they want.
Thank you, blockchain.
Unless a company needs U.S. citizens to buy its token, it has no need for Wall Street or the SEC. Even Blockstack was able to raise $7 million from non-U.S. investors—not the most glamorous haul, but no small feat for an upstart tech project.
Wall Street may have lots of connections, but it doesn’t have a monopoly on professional networks. Lawyers, advisors, consultants, traders, experts, and brokers can start their own businesses or find other non-Wall Street opportunities to ply their craft. On top of that, new financial and telecommunications technologies give these professionals access to each other (and financial markets) without the help of a Wall Street firm.
This will seem obvious when we get robust security token platforms and other blockchain-enabled financial innovations.
Once we get to that point, when anybody can offer any cryptocurrency on any terms with safety and integrity, we will not need a Wall Street entity or U.S. regulator to oversee the sale.
Wall Street knows this, too. Why do you think all those Goldman Sachs executives left for crypto-related ventures?
It will take a while for entrepreneurs and developers to wrap their heads around this monumental shift. Even longer to create the networks, processes, and technology to support this approach to finance. Government agencies will come last (they always play catch-up).
Now is the time for Wall Street to get ahead of those changes. Cornering the market on ICOs will help.
Playing the influence game
With a foothold on ICOs, how long will Wall Street wait before suggesting U.S. regulators put it in charge? After all, who else can you trust to make sure terrorists and scam artists won’t use ICOs to enrich themselves?
When does Wall Street petition for sole domain over ICOs, IEOs, security tokens, and new blockchains?
Will Wall Street firms start buying out all the ICO platforms that spring up over the next decade? Or start their own?
Here’s the story Wall Street will tell:
Back in 2017, ICOs were scams and frauds. With our help, the SEC cleaned everything up. Now, you can buy your stake in the financial networks of the future. You won’t need to set up a shady, complicated crypto wallet or worry about con-artists trying to pull an exit scam. You might even find the next bitcoin! We’ll handle the paperwork. You just give us your money.—Wall Street to everybody else
That story is compelling and true.
Win before Binance (or somebody else) does
Wall Street needs to tell that story before Binance US can do it. Not just because Binance is competition, but also because Binance represents a new generation of effective, competent, savvy, well-financed cryptocurrency investment platforms that Wall Street does not control.
As those platforms continue to succeed and grow, they will take Wall Street’s turf.
Could they succeed if Wall Street lobbyists craft a regulatory environment designed to kill them? If Wall Street corners the market for ICOs? If Bakkt really succeeds the way everybody hopes?
It’ll be interesting to see how it all unfolds.
Wall Street brings order and stability to every market it’s involved in. That’s not a bad thing. In fact, we may all benefit from Wall Street’s involvement in ICOs. The Internet boomed once U.S. Congress handed it over to telecommunications companies.
But maybe not. Wall Street’s mere presence may tilt the whole crypto market off-kilter—or at least skew the industry in favor of big, entrenched financial interests.
Or maybe blockchain’s transparency and security may make Wall Street obsolete?
In any event, Wall Street continues to quietly creep into the crypto. As I’ve written before: Once Wall Street Starts Telling Its Story, Everything About Cryptocurrency Will Change.
Will that change make things better or worse?
Mark Helfman is a cryptocurrency commentator and author of Consensusland, a Readers’ Favorite 5-star book about a country that runs on cryptocurrency. You can also catch him on Medium. He publishes every Friday.