less than a decade for bitcoin to evolve from a novel idea into a worldwide
phenomenon, thanks in large part to a speculative frenzy that began in 2017 and
saw the price of a single bitcoin peak
at roughly $20,000.
That price has
since retracted by about 80%,
but there has been no change to its underlying value, and it’s safe to say that
the most popular digital currency is now a legitimate financial asset. The same
can’t be said for all cryptocurrencies, which is why the volatility of the past
year was a blessing for the cryptocurrency space.
The scores of initial coin offerings
that popped up by the end of 2017 and the start of 2018 were filled with
scammers trying to take advantage of investors hoping to get rich, and those
that weren’t outright scams were often far from good ideas. In fact, 58%
of all ICOs in the first nine months of 2018 either disappeared, failed to
raise money or had to refund participants.
the wheat has mostly been separated from the chaff. The majority of the
projects that have survived the current bear market are led by experienced
teams working to apply blockchain solutions to real-world problems. As the
space continues to mature, we’ll see more innovation, which will attract
more sophisticated retail investors as well as institutional money. But
challenges still lie ahead.
cryptocurrency enthusiasts are pointing to security token offerings as
a solution to both ICO fraud and persistent regulatory issues that have kept
many would-be investors on the sidelines. STOs aren’t much different from
traditional securities except that they rely on blockchain technology —
specifically smart contracts — to make processes like paying out dividends or repaying
loans more efficient.
Unlike ICOs, which don’t give
investors any rights to an underlying asset and don’t obligate sellers to
follow through with anything at all, security tokens are tied to something
tangible like business profits or revenue. However, STOs aren’t perfect.
Sellers can still violate regulations if the security is resold to another
party (in practice, once the token is acquired, the holder can do what they
wish with it) unless the proper exemption is granted from regulators. Unsurprisingly,
the U.S. Securities and Exchange Commission has yet to fully approve many of
those that have filed.
That said, the floodgates are open and
it’s only a matter of time before cryptocurrency hits mainstream exchanges.
Investors can already trade bitcoin
futures on the Chicago Board Options Exchange and the Chicago
Mercantile Exchange, and the Nasdaq has confirmed that it will be adding liquid
indices in late February to track the values of bitcoin and
crypto bear market may last well into 2019 (and perhaps even longer),
but cryptocurrency is here to stay. If you’re an individual investor
or leading a company that is looking to gain exposure to crypto — either by
accepting cryptocurrency payments or by including it in employee compensation
packages — here are three steps you can take to mitigate risk.
1. Educate your team.
of people were posing as experts in 2017 and the beginning of 2018, the reality
is, there still aren't tons of people who fully understand the technology
underpinning many cryptocurrencies. It's OK if you're not an expert. However,
there's also plenty of information available on the real-world value of crypto
as well as the financial benefits and risks. Take the time to read it.
Especially if you're going to be investing, you should know what a scam looks
like; they're not unique to crypto.
You should know a little bit about
cryptography in general, and you should definitely know that if you lose your
private key, someone can’t just unlock your wallet. Likewise, if you're not an
experienced investor, you need to know what's at stake. As with any
investment, you should be willing to face losses. The need to diversify is just
as important as with a 401(k) or personal retirement plan. And yes, you'll have
to pay taxes on gains and losses.
customers know you accept crypto.
Many of those holding
bitcoin are still looking for legitimate places to spend it. If
offering crypto payments to customers, trade it to fiat immediately in order to
reduce risk, unless you're in it for the long haul. If you’re receiving
payments in crypto, you should try to get your vendors to accept such payments,
and cash out to fiat only the difference you can’t pay out in crypto.
Otherwise, you’re not capitalizing on digital currencies' real benefits, such
as faster and cheaper transactions.
consider an ICO at this point.
You could very well be breaking the
law. If you're looking to raise funds with crypto, you'll be much better
working with companies like Polymath, Athena Blockchain, Securrency and others
that exist to help companies create, register and market their STOs. They have
teams of lawyers who will help you each step of the way. That doesn't mean you
don't have to do your own due diligence. There will always be investment scams,
no matter the investment vehicle. There are still ICOs claiming to be STOs that
haven't registered any exemptions with the SEC or another appropriate regulatory
The meteoric rise of bitcoin’s price
was largely driven by hype perpetuated by mainstream media, and many
inexperienced investors paid a steep price for buying into that hype just as
the crypto bubble was bursting. Ironically, the same “experts” who were
calling bitcoin the next big thing in 2018 are asking if it’s dead in 2019. The
answer, of course, is no. The next bull cycle likely won't see bitcoin prices
skyrocket past $20,000 (or even $100,000, as some analysts claim), but
cryptocurrency has already proven its value — and its permanence.
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