Sources of Capital for ICOs and Bitcoin Whales

Autonomous Next has analysed the sources of capital for the recent surge in Initial Coin Offerings (ICOs). Our findings show that the digital currency ‘whales’ are split into five categories: (1) mining pools, (2) exchanges, (3) currency traders, (4) ICO investors, and (5) traditional financial investors.

Firstly, the mining pools (e.g.  Antpool) are the early beneficiaries of the crypto-currency wave and represent a collection of specialised computing clusters that centralise their computing power to gain the next coin distribution. Exchanges represent the retail and over-the-counter venues that allow for the conversion between fiat and digital currencies (including coins/tokens). Currency traders are funds that focus on the trade of crypto-currencies with the aim of making a profit rather than the investment into tech projects. ICO investors, however, are larger funds with institutional or private capital to invest in emerging technology projects. Finally, traditional financial investors represent venture and Angel investors in the equity of companies working on Blockchain solutions. Together, these groups account for over $700 million of ICO funding.

Bitcoin Transaction Volume and Marketcap Comparison

Autonomous Research have analysed and compared transactions and market capitalisation between Visa, MasterCard and the blockchain platform, Bitcoin. In the fourth quarter of 2016 Visa and MasterCard transacted volumes of US$1.9 trillion and $1.2 trillion respectively, with their market cap approximately equalling 1% of transactions volumes. Alternatively, Bitcoin had $107 billion in transaction volume in 2016 and its ecosystem is valued at $11 billion, although another $30 billion can be priced into Bitcoins market cap as a growth prospect. That number can be discounted due to the high correlation between funds and speculation, lack of full scale and technical and regulatory issues. However, it can also be buffered by the other 50% of Cryptocurrency assets and next-gen growth technology that is being integrated into the ecosystem.

The Economics of Crypto-Tokens Compared to Traditional Stocks

Autonomous Research has modelled the flow of resources in traditional stock investing and the increasingly popular Crypto-token investing.  In both cases, the four primary players are: (1) the operating organisation, (2) the founders, (3) outside investors, and (4) products and services.  In traditional stock investing (left model), outside investors trade cash for an ownership stake in the operating organisation. Meanwhile, the organisation generates economic activity in the form of products and services in return for an economic reward from the external fiat money supply. Fiat money, as opposed to crypto-currency, refers to inconvertible paper money declared by a government to be legal tender. Further, we note that a company’s utilities, such as money transfer technology between bank departments, are not monetized.

Our right model represents the flow of resources in crypto-token investing. In this case, outside investors are required to trade cash for an ownership stake in the functional utilities or proprietary money supply, which is owned and issued by the operating organisation. This money supply is usually a liquid digital crypto-currency known as a token and is unique to the operating organisation. Depending on the company, token holders could have a right to investment features, such as equity interest, but also to functional features, such as using the system and its outputs.