Crypto venture capitalist Barry Silbert said that he is not bullish on the projects raising funds via Initial Coin Offering, or ICO.
The Digital Currency Group founder told Forbes that he philosophically supported the idea of disintermediating funding process but yet found it uncompelling from the point of view of purpose, capability, legality, and valuation.
Utility Token Sales are Senseless
Silbert spoke as an investor whose company is always on a lookout for the most potential blockchain projects. Giving his experience in coming before projects that, according to his opinion, served no practical purpose in the real world, Silbert admitted that they were attempting to tokenize projects that didn’t need tokenization.
“To us [investors], buying tokens for utility does not make sense, especially when it’s adding friction to a product that didn’t need a token at the first place,” said Silbert while instancing projects that sold tokens to purchase gaming products, to raise capital for tweaking services like Uber with decentralization and whatnot.
Silbert also doubted whether the teams behind most of the ICO projects had the capability of delivering on to their vision. Saying that it takes ten years mostly for an idea to either succeed or fail, he discussed the need to verify these ICO teams for their past performances, that have they ever demonstrated success in all their professional careers or not. Silbert coupled his concerns with the valuation of most of the ICO projects, saying their expectations are mostly “unreasonable.”
“The idea that somebody can put up a whitepaper put up a website and go raise money from the masses, it goes against everything I’ve come to see working in the US,” he said.
In the wake of the Securities and Exchange Commission’s mounting crackdown on the token issuance bodies, Silbert that believed that the US regulator is only after the protection of investors. He said he has already visited Washington DC more than 100 times to meet lawmakers and SEC officials, but they are still equating tokens with securities in absence of a concrete crypto law, which also proves why utility tokens will not make an ideal investment.
“Ultimately, the whole ICO market is going to go away or it will be going to evolve,” Silbert predicted after processing the legal factors. “Utility tokens, in long-term, will not have any appreciation barring their use in projects related to commodities or natural gas or copper. They are not a good investment.”
The statements come at a time when more than 90 percent of ICO projects launched in the last two years have reportedly failed to deliver their products. It has led to a drop in token sale investors’ interest as a whole. The investments into these blockchain ideas, according to Autonomous Research, have dropped significantly as evident in September 2018 fundraising capital collapsing to its all-time low since May 2017.
Silbert’s seed investment fund has invested in companies like ShapeShift in the past that didn’t comply with SEC regulations until very recently. Their portfolio companies also include projects that have utility tokens issuance plans in the future. But, according to the venture capitalist, their involvement in the decision-making process in these projects is minimal.
“We have no more than 2-3% ownership in these projects and we are not in their board of directors […] We assist our portfolio companies [such as Protocol Lab] by recommending/arranging lawyers to issue utility tokens under compliance,” Silbert said. “We are very excited with the long-term prospects of their utility tokens.”
As the SEC continues to treat token as securities, Silbert also doubted whether these tokens would serve any better purpose than the existing proof-of-ownership stocks like those of Facebook.
“I’m not convinced yet that it does,” he conceded while citing liquidity as the main barrier. “It was hard to create a liquid market in Facebook stock and that was a multi-billion dollar company.”
“To create a security market in a security token that has a $10 billion market cap with over, say, 50 holders. I’m just not convinced if that’s the future of capital formation.”
Bitcoin Adoption in Wall Street is ATH
Silbert has previously stated that what Wall Street says publicly about Bitcoin does not equate what it says privately about the digital currency. He explained how people in the JP Morgan building, including Jamie Dimon, a Bitcoin critic, are still showing interests in the digital currency despite its poor year at the market.
“What we’re seeing right now is the level of engagement and the level of seriousness that we see coming out of the Wall Street institutions and banks is at an all-time high. There are plenty of commentators that say Bitcoin is dead but behind the scenes, the Bitcoin market is at full steam right now,” he claimed.