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What is an STO (Security Token Offering) & 10 Reasons Why It Will Have a Massive Impact

What is an STO (Security Token Offering) & 10 Reasons Why It Will Have a Massive Impact

Startup financing took a dramatic turn in 2017 as initial coin offerings (ICOs) burst onto the scene. In 2017 and 2018, more than $14 billion flowed into blockchain projects as investors looked to capitalize on crypto euphoria and the low barriers to entry made possible by the ICO funding model.It has been less than a year since the market for ICOs went bust, but the impact of the new crowdfunding model will endure for many years to come as startups look to tokenize real assets and leverage the power of the crowd to finance their next major project. But in order to do so, these companies must follow standard securitization practices laid out by the U.S. Securities and Exchange Commission (SEC), which has deemed all crypto assets, except bitcoin and Ethereum, to be securities. At least, this is the case for projects seeking exposure to U.S. markets.The SEC’s position on ICOs doesn’t differentiate between so-called utility tokens and security tokens. For all intents and purposes, new token offerings must comply with federal securities laws. Naturally, this has given rise to a new paradigm: the security token offering (STO).Security Token Offering (STO): A PrimerWhat is the difference between an ICO and an STO? Image from Shutterstock.While the SEC at times has been opaque about how it intends to treat ICOs, assets that do fall under its purview are governed by clear and defined regulations. Tokens that the SEC deems to be securities are commonly referred to as “security tokens.” This is not a universal definition, but a standard operating practice used by U.S. regulators when dealing with domestic ICOs that have the characteristics of a security.A security token is any crypto-based asset that pays dividends, shares, profits or interest or invests in any other asset that too generates profits for the holder. Although ICOs have attempted to side-step this definition, the SEC administers the so-called Howey Test to determine whether an asset is indeed a security. The Howey Test says that a token is a security if it: (1) is an investment of money; (2) invests in a common enterprise; (3) has an expectation of profit; and (4) that profit is derived from the effort of others.STO vs ICO: The Main DifferencesUnlike an ICO, a security token is essentially an investment contract into an underlying asset; it has all the attributes of a security in that it is a fungible, negotiable financial instrument that represents actual monetary value. STOs are backed by real assets and follow the SEC’s guidance on compliance, issuance, and trading.An ICO, on the other hand, technically has no collateral. Issuers tried to circumvent regulatory requirements by claiming their tokens were a utility as opposed to a security (as we mentioned earlier, the SEC doesn’t buy that argument). An STO is neither an ICO nor an initial public offering a la stocks; rather, it overlaps both fundraising models.In the early stages of the ICO boom, tokens that were deemed to meet the SEC’s classification of a security were sold only to accredited investors. To that end, the blockchain industry developed the Simple Agreement for Future Token (SAFT) framework, which was designed to simplify investor verification and accreditation. The SAFT model was short-lived as the tokenization landscape continues to evolve.Investing in utility tokens did not require any accreditation, which is part of the reason they were so popular. That meant virtually anyone could participate in the sale of a utility token, provided they register in advance (i.e., whitelist) and meet the minimum investment requirements set forth by the issuer.Over a two-year period, Hacked.com evaluated 474 ICOs on the basis of tokenomics, team, market opportunity, and risks. For a full breakdown of these projects, visit the website’s ICO Analysis section. The last project that was evaluated and scored was BitTorrent Token.The following chart highlights the ICO boom that began in spring 2017:A total of 875 blockchain projects raised $6.2 billion in 2017. | Source: ICOData.io.And this chart shows the bursting of the ICO bubble in 2018:The ICO market has seen the last of its glory days. A total of 1,258 blockchain projects raised $7.8 billion in 2018, with the bulk of the funding coming through the first two quarters. By Q3, the market was already beginning to dry up. | Source: ICOData.io.Understanding the STO EcosystemWhen a company wants to issue a security token giving investors a stake in its enterprise, it must seek out the support of the following players:Legal: To ensure that the STO is compliant, a company needs to work within the country’s existing regulatory frameworks. Failure to do so could lead regulators to shut down non-compliant projects as the SEC did to illegal ICOs in 2018.Issuance platform: To issue the security token and attract a range of potential investors, a company may choose to seek out the support of an issuance platform designed for STOs. Some of the leading STO issuance platforms include Polymath, Swarm, Securitize, Harbor, and Securrency.Custodian: The need for custody is becoming more apparent in the age of STOs. Issuing companies must, therefore, seek out the support of a custodian for storing their digital tokens. Custody services are usually offered by issuance platforms as well as STO exchanges.Exchanges: Companies that issue an STO can only list their token on regulated exchanges. This is one of the fastest growing segments of the market, with the likes of tZero, Blocktrade, currency.com, Lykke, Open Finance and several others already supporting security token listings.STOs: The AdvantagesFrom the perspective of investors, an STO has several advantages over the preceding ICO funding model. Firstly, STOs are lower-risk investments because they are enforced by federal regulation. In the United States, this means they have to meet SEC requirements around transparency. At the same time, the STO still retains many of the benefits of an ICO, including lower costs and ease of access. And because they are regulated, STOs could potentially open the door to institutional investors who otherwise wouldn’t have invested in the previous iteration of the token sale.A regulatory framework also means that investors can worry less about scams and fraudulent projects that inflicted damage on the ICO market. At one point, it was estimated that 4/5 ICOs conducted in 2017 were in fact scams.When collateralized assets are tokenized, they allow for fractional ownership of real assets, which gives investors more options to diversify their portfolios – again, at a lower cost. This means STOs will continue to offer opportunities to smaller investors who were originally drawn to the ICO model.“So, what’s the big deal behind tokenization? We’re not referring to any one particular company or asset but the concept of transforming real-world assets into digital tokens. This process extends far beyond what initial coin offerings and blockchain startups are doing but for investors, this domain might be the best place to start. Platforms and service providers that allow you to invest in real assets through a tokenized share and track the performance of your profit are the most likely to offer value.” – Hacked.com (March 27, 2019).STOs: The DisadvantagesAlthough regulation is considered advantageous from the perspective of investors, compliance is relatively complex for token issuers. That largely explains why the STO market has been much slower to launch than its predecessor. In fact, during the ICO boom, many blockchain companies refused to sell their tokens in the United States due to complex regulations and the need to identify as a security token.The hold up is also due to a lack of appropriate exchanges to facilitate security token offerings. Overstock’s tZERO, arguably the most closely-watched token platform, officially launched in January to accredited investors but this doesn’t seem to have created a strong STO pipeline just yet.STO trading platforms like tZero will play a significant role in how the market for security tokens evolves. | Image: Shutterstock.At the same time, major exchanges like Binance have yet to say whether they will support security tokens. This means STOs are still a relative niche product. This is further amplified by the fact that many countries have outright banned STO trading, including current and former crypto hotbeds like South Korea and China.10 Reasons Why STOs Could Change the Crypto MarketsTaking into account the market’s appetite for high-quality, compliant cryptocurrencies, there’s a strong reason to believe that the STO model will have a lasting impact on the blockchain ecosystem. Below are ten reasons why STOs may in fact change the dynamics of the crypto industry as a whole.1. CredibilitySTOs that follow federal guidelines and are approved by the SEC should gain instant credibility, taking much of the grunt work out of evaluating projects. This means investors can spend less time researching project members’ LinkedIn profiles to prove they are legit and spend more time evaluating the merits of the actual business model.2. Breaking the Crypto StigmaIncreased regulation and credibility will put an end to much of the stigma surrounding cryptocurrencies among traditional investors. This could enrich the ecosystem with new capital and market players. Investors who are banking on greater institutional adoption should look beyond just bitcoin futures and custody services and toward STOs.3. Micro-InvestmentsOne of the most attractive features of ICOs was the low barrier to entry relative to other capital markets. STOs could take micro-investing mainstream and allow more people to participate in startup ventures that were previously restricted to accredited investors and venture capitalists.4. Traded as SecuritiesPlatforms like tZero are working to ensure that STOs have a regulated venue for trading. This means cryptocurrencies will be traded as securities, giving investors ownership, voting and asset allocation rights. This may open the door to STOs one day being included in tax-free savings and retirement accounts.5. Actual Ownership of Underlying AssetsWhereas so-called “utility tokens” were meant to give investors future access to a product or service, a security token represents actual ownership of an underlying asset. If you invest in a real estate STO, your holdings represent actual shares in physical property rather than an IOU for a future date.6. Programmable Ownership and ComplianceSecurity tokens are programmable by nature, which means compliance protocols can be embedded into the actual asset and amended over time. This also means there’s no limit to the types of rules and systems that a security token can bring to the table. The ICO model didn’t have this level of sophistication.7. High Success RateWhereas most ICOs have either gone bust or are in the process of going out of business, the early track record for STOs has been overwhelmingly positive. According to one estimate, STOs currently have a success rate of 99%. Whereas ICOs merely sold their whitepaper, STOs are more likely to have something real to offer. Most ICOs merely sold a pipe dream.8. Low Fees are Here to StayBlockchain technology has reduced the need for an expensive middleman and has passed on those savings to investors. The emergence of low-fee investing will only strengthen under the STO model given its programmable compliance and ownership features.9. Decentralized Assets Remain DecentralizedAs the SEC has already noted, regulation impacting security token offerings have no bearing on assets that are “sufficiently decentralized,” such as bitcoin and Ethereum. Decentralized money is here to stay, except now the stigma associated with cryptocurrency and digital assets go away.10. Increased InnovationA regulated ecosystem for tokenization will likely open the door to greater adoption and, ultimately, new innovations in the blockchain arena. A more innovative environment means more investment opportunities and wealth creation. This trend is already well underway as startups and institutions continue to utilize decentralized ledgers.The Bottom LineThe ICO boom may be long gone, but the age of tokenization has only just begun. According to digital asset banker Finoa, tokenization has the potential to do to ownership rights what digitization did to media. This new paradigm will impact everything from standard issuing products like stocks and bonds to smaller and more illiquid assets like business shares and real estate.For these reasons, there’s a lot to be bullish about when it comes to security token offerings. A current reading of the market suggests demand and adoption will be slower to materialize given that regulatory standards have only just been applied and implemented. But the launch of tZero and the growing appetite for blockchain-based projects means STOs are a potentially future-proof asset class.
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$25,000 Bitcoin Price Next for Perma-Bull Lee after Ringing Crypto Winter Dead

$25,000 Bitcoin Price Next for Perma-Bull Lee after Ringing Crypto Winter Dead

By CCN: Fundstrat CEO Tom Lee says the ‘crypto winter’ is finally over, offering 13 solid reasons to back up his claim. According to the bitcoin perma-bull, there’s nothing but blue sky between here and his $25,000 price prediction.If he’s right, then bitcoin has bottomed for this cycle and we have now entered a bull market. Lee’s 13 signs touched on everything from technical analysis, Wall Street involvement, bitcoin metrics, and generally positive sentiment.After a disturbing pullback to ~$6,200, #Bitcoin back >$8,000 further cementing positive trend intact.As we said a few weeks ago, Consensus 2019 @coindesk was to prove whether crypto winter is over……confirmed pic.twitter.com/M8ni4g2YvX— Thomas Lee (@fundstrat) May 19, 2019Bitcoin’s “disturbing pullback” to $6,200 just a blipLee said that bitcoin’s recent flash crash to $6,200, which was triggered by a huge sell order on Bitstamp, was a blip. And the subsequent rebound to $8,000 strengthened the case that bulls were back in control of the market.Tom Lee believes bitcoin has bottomed at $3,200 and begun the road to recovery. Source: CoinMarketCapAs Lee points out in his 13 reasons, negative news stories no longer seem to dent the market. Citing recent events that ought to have shaken the markets, he said:“Stable market reaction to controversy around Bitfinex/Tether and NY Attorney General’s court order alleging undisclosed transfer from Tether’s reserves to Bitfinex in order to cover up mishandled funds.”Lee: Consensus 2019 confirms the end of crypto winterLee said the final proof of bitcoin’s rebound lies with the Consensus conference. The event, run by Coindesk, is often cited as a catalyst for price action, known as the “Consensus Pump.”The bitcoin price rallied to a ten-month high of $8,000 as the conference kicked off. It was the catalyst Lee needed to confirm that crypto winter is finally over.Bitcoin transactions surge and accumulation beginsAmong the other reasons for Lee’s conclusion is the volume of bitcoin transactions. He wrote that on January 23rd:“On-chain transactions per day turn positive YoY, the first time since January 2018 (consistently).”#bitcoin transactions reaching ath’s again🚀 pic.twitter.com/YMfQIQir1C— Sakura ¥ (@carryyen) March 28, 2019He also pointed to volume on over the counter (OTC) markets, hinting that brokers were reporting 60 – 70 percent increase in new client activity. At the same time, wealthy investors were accumulating bitcoin, not just on OTC markets, but in Grayscale’s flagship Bitcoin Investment Trust.It’s in the charts…Additionally, Lee points to a slew of technical analysis that confirms bitcoin’s upward trends. The most significant of which is the so-called “golden cross” when bitcoin’s 50-day moving average crossed the 200-day moving average. It historically indicates a bull market, not just in crypto, but in financial markets generally.Ladies & Gents… The Golden Cross!Bitcoin’s 50-day moving average (gold) crossing above her 200-day moving average (blue). 📈This is yet another sign that we’re back in a🐂market. 🚀🌛 pic.twitter.com/VK1PSsOYIB— Mati Greenspan (@MatiGreenspan) April 23, 2019Lee also cites his own firm’s Bitcoin Misery Index which ticked back up to 2017 levels.Bitcoin price to soar to $25,000?With crypto winter finally over, Lee may double down on his $25,000 bitcoin price prediction. The perma-bull originally predicted that bitcoin would hit the milestone by the end of 2018. Even when it failed to materialize, he remained optimistic, saying $25,000 is a fair price for bitcoin.“Strangely, I just think that’s a good, fair value for bitcoin, but the timing of that’s going to be difficult. Bitcoin has had 70 percent pullbacks four times already in its 10-year history, and it has recovered to new all-time highs every time. So to me, it’s resilient.”At what price will see FOMO from those who gloated about 90% crash in $BTC?Military term, SWAG (scientific wild-assed guess).My SWAG is $10,000 is price that causes FOMO from those who saw #bitcoin as dead forever. POLL: At what price do we see FOMO?— Thomas Lee (@fundstrat) May 12, 2019For now, the psychological barrier remains at $10,000. According to a Twitter poll conducted by Lee, his followers believe this is the price at which new investors will FOMO into cryptocurrencies. 
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JPMorgan Tries Fear-Mongering in Attempt to Sabotage Bitcoin Price Rally

JPMorgan Tries Fear-Mongering in Attempt to Sabotage Bitcoin Price Rally

JPMorgan Tries Fear-Mongering in Attempt to Sabotage Rowdy Bitcoin Price RallyJPMorgan strategists are warning investors that bitcoin, in its current value, is overpriced. | Source: ShutterstockBy CCN: JPMorgan doesn’t love bitcoin. The bank – the United States’ biggest financial institution by assets – has been historically pessimistic about the flagship cryptocurrency, so just when bitcoin prices started going through the roof, it decided to crash the party with a dire warning.#Bitcoin prices diverge from intrinsic value, carrying echoes of late 2017, JPM says. pic.twitter.com/DImDoSMv8L— Holger Zschaepitz (@Schuldensuehner) May 17, 2019JPMorgan makes yet another effort to sabotage bitcoinThe crypto winter gave JPMorgan’s bitcoin bears reason to cheer earlier this year. The Wall Street firm’s analysts were bandying about a $1,260 bitcoin price target in January, warning HOLDers that they should prepare for more pain in case the crypto winter continued.Bitcoin’s impressive price rally has made those analysts eat their words as the digital currency is now trading over $7,900. But JPMorgan says that the current bitcoin price is reminiscent of 2017’s boom-bust pattern when the cryptocurrency’s market price had surged ahead of its intrinsic value and then crashed spectacularly.JPMorgan strategists wrote in a note (via Bloomberg):Over the past few days, the actual price has moved sharply over marginal cost. The divergence between actual and intrinsic values carries some echoes of the spike higher in late 2017, and at the time this divergence was resolved mostly by a reduction in actual prices.The note tells us that JPMorgan is trying to rain in on bitcoin’s parade, giving bears fodder by telling them that bitcoin’s current price doesn’t reflect its true value. But there’s a flaw in the JPMorgan has arrived at the “intrinsic value” of bitcoin.Don’t get carried away by JPMorgan’s fearmongeringJPMorgan has arrived at bitcoin’s intrinsic value by treating the digital currency as a commodity. The Wall Street firm estimated the cost of “producing” a bitcoin using variables such as electricity expenses, hardware efficiency, and electricity expense.But it seems like JPMorgan forgot that the current bitcoin price rally has a lot more legs than the last one, and it doesn’t make sense to value it based on the cost of mining. That’s because bitcoin is proving to be a solid alternative investment at a time when the stock market is in turmoil, thanks to the US-China trade war.In a period where: —political tensions escalate between US and China, —global equity markets fall sharply—VIX largest spike in many months—global yield curves flatten/invert#bitcoin has RISEN and >$6,000Crypto showing its value as an uncorrelated asset.— Thomas Lee (@fundstrat) May 9, 2019As it turns out, the Chinese are dumping their currency in favor of bitcoin to escape the yuan’s painful decline.Meanwhile, institutional investors are piling into bitcoin as the digital asset is believed to be better than gold as a safe-haven investment. Asset management firm Morgan Creek Digital’s CEO, Mark Yusko, estimates that the price of bitcoin could reach as high as $500,000 if the cryptocurrency is valued like gold:So if we get the amount of value in total Bitcoin market value or network value equal to gold, that’d be about $7.4 trillion divided by 21 million coins, although there aren’t really 21 million left, and you get around $400,000 a coin, maybe $500,000 a coin. Now, when does that happen? It’s probably over a decade or maybe even more.A survey carried out by Fidelity Digital Assets has found out that almost half of the institutional investors that it had surveyed see a place for digital assets like bitcoin in their portfolios.We asked: what do institutions really think about #digitalassets? https://t.co/3Lq5h5ITbT— Fidelity Digital Assets (@DigitalAssets) May 2, 2019So, JPMorgan’s claim that the price will crash just because it is trading above the intrinsic value, which has been arrived at by calculating mining costs, is nothing but a farce.It’s ‘Worth Nothing’: Jamie Dimon Takes Another Shot at Bitcoin https://t.co/junawpXqNa— CCN.com (@CCNMarkets) September 22, 2017But bitcoin has proved that it has value because of its real-world use cases. So don’t be surprised to see JPMorgan’s famed analysts eating their words once again when the price shoots higher.Click here for a real-time bitcoin price rally. About The AuthorHarsh ChauhanHarsh Singh Chauhan has a wealth of experience evaluating publicly-traded companies across several verticals, including technology, oil and gas, retail, and consumer goods. He is a syndicated author whose articles have been published on reputed online platforms across the U.S., Europe, and India since 2011.This article was edited by Samburaj Das.
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