Hey everybody I’m Adam Chapnick.
And I’m Amy Wan. Welcome to this special holiday edition of Security Token Insight brought to you by the Security Token Academy.
As you know the Security Token Academy is on the leading edge of the Security Token industry. We’ve held world class events and conferences featuring the top industry experts from all over the world.
That’s right. Just this past year we’ve traveled to the Bahamas, New York City, San Francisco, and Las Vegas. Just to name a few places where we’ve conducted interviews.
Yeah, Amy and I had the privilege of asking about Security Token industry predictions for 2019. Take a look at these responses.
The big piece right now is the bi-side. I think the supply side in terms of security, Tokens is pretty robust. There’s a lot of issuers that are interested in generating liquidity, there’s a lot of issues in every asset class, right? In fixed income, in real estate, early stage equity. I think the important part is developing the bi-side. Most crypto investors are looking for venture like returns, so they may be less interested in real estate. Although I think they should be, as a sort finance professor, we like to talk about diversifying portfolios. But when you look at a lot of the traditional real estate investors, they’re not yet comfortable with the platforms; digital wallets and so on. So I think bridging that gap is going to be the big effort over the next 12 to 24 months.
Everyone should read about the economics of property rights. And exactly how do you design a token that people, delivers value and people want to hold it.
I would wish that there would be a little bit more guidance. I think the SCC continues just to kick the can down the road, nobody, they’re trying to say “hey let’s supply this 100 year old rule of the Howey law or the Howey test.” Let’s apply current security laws, we have a 1933 act and a ‘34 act, it’d be great to have a 2019 act. We’re not going to see that but you know, that’s my wish list I guess. I think the security, I think the market will evolve in that, like I said I think that dam will break, the SCC will start approving some of these tokenized Reg A plus offerings. And once that happens I think that that will become almost more of a, I don’t want to say the norm, it will take, there will be an adoption period, but once you actually see tokenized offerings being approved, you see secondary trading and that’s kind of the big elephant I guess it’s alluding us, right? It’s that secondary trading.
As soon as those ATS’s or those UT0’s or whoever get approved, once those things start falling in place and I would say last year that it would be 2018 so fingers crossed 2019. I think we’ll just see tremendous growth in the industry. We’re already seeing a lot of private placements of tokenized offerings. You’re seeing the tokenization of real assets, of real estate, of oil, of a lot of them. I’m working on a solar deal, so you’re seeing that movement and I think that will only grow once those floodgates open.
I actually think that the players that have merged right now are doing a pretty good job. Because you’re having people engage in the space that have the well with all, the experience in the financial industry to make this stuff come together and make it happen. Yes it’s taking a lot of time, innovation is sloppy. It can be messy, but I’m actually pretty optimistic about the direction we’re heading right now. And I think once we see some of these Reg A plus offerings approved by the SCC, and once you start to see some of these trading platforms fully come online, then you’re going to see much more excitement, momentum built. It’s just going to take time. Yeah I want to just snap my fingers and I’ll be done tomorrow, just like everybody else. But that’s not reality.
Hopefully we have the dominant firm in this plate, no I’m just kidding with that. No I think we’re going to just kind of continue to evolve. Which is, I think as an attorney in this space, in many respects you’re one of the first people entrepreneurs our other companies are talking to. And I think one of the focuses we have is on understanding the ecosystem and knowing the ecosystem in a way where we can really benefit entrepreneur. So that’s understanding, issuance platforms, understanding secondary markets, understanding the interesting investors in the place, in the space. Knowing all that, connecting all those dots, so that our companies that we’re representing can be successful.
I don’t think there’ll be much of a change.
I think where we are. So there may be some exchanges that come online but liquidity is going to be very limited I think for a number of years. I think 4 or 5 years.
Because there’s two things that brings liquidity to market.
Right? So one would be high frequency trading. And the other is a derivatives market. So until we have both of those that exist in the tokenization market, there’ll be very limited liquidity.
Yeah we saw that obviously in the crypto currency side exactly as you described, but you’re right those have a long way to go before we have that on the STO side, but that’s very insightful, I love it.
And I would say the one other thing I think would be interesting that may happen is seeing a major corporation that goes and tokenizes their equity ownership. That changes from a traditional, maybe by the end of the year 2019 that would happen, but I think that would be a big tipping point for this space.
Tim Draper gave a speech that I watched at CoinAlts in San Francisco
And he talked how this looks compared to the .com bubble.
He thinks that the .com bubble built a lot of fake stuff in there, it popped, and then real businesses came afterwards. And that’s when we had Amazon and so many others really get legs. He thinks that blockchain now is post bubble and now it’s when things are really going to take off. So, how’s it look in terms of scale from prime trust as well as for the industry, exponential.
Well I’m a scientist and not a soothsayer, so I’ll try to use the data not the crystal ball, uh but I again I think it’s once we hit a critical mass of security token exchanges that provide the liquidity. That’s the real concern right now is, “okay great I buy one of these token, what can I do with it.” Right?
And so, uh I think that’s going to be happening in the first half of 2019, and if did I have to venture a prediction by the end of 2019. I think, and I’ve stated this in some of my written pieces that we will see a second wave of token sale boom that is going to actually dwarf the first one, because it will involve institutional players, the big banks, the big funds like if you look at the end of 2017. It was exciting for people in the crypto community and you know the Bitcoin bros were making out like bandits, but serious, savvy, and institutional investors were looking at that and saying “Not me”, right?
Growth like that is not sustainable, it’s scary, it’s a sign of a tulip bulb type market. Now we’re seeing a cryptocurrency market that feels less manipulated, there’s still some manipulation going on. But certainly with the introduction of the futures trading and people being able to short bitcoin and just having more sophisticated means and processes of trading and still volatility but not at the level that we saw previously nor with the hyper growth we saw previously. I think that’s a big reason you are starting to see these blue chip financial institutions and universities making major bets, and that’s a good thing for the industry.
The security token ecosystem today it’s a no-brainer and it’s inevitable that private companies are going to raise capital using security tokens. The thing that’s been missing all along is enforceability rules, and there are a lot of thought leaders that have been screaming through their mouthpiece of their blogs that “Hey what is this story with this ICO market, you don’t need it, the jobs act exists, crowd funding exists, just follow the rules”
And I, excuse me, and I think that um the industry at large has taken it’s time to learn what that means and slowly come to the determination that “Oh we can do this” you know? As a token it works, the advantages are obvious, so that’s the private marketplace. Going forward, it’s going to take a long long time until people start to recognize how much more needs to happen. So for example, the main difference between publicly trade stocks and privately traded stocks are normalized reporting requirements, right?
Right, Absolutely right
That brings standardizations rules, why? Because they need to be relatively value to one another, they need to be a bit, to analyze, this versus that
And they have to have the same financial statements so I can make
Apples to apples
Apples to apples, when is that going to happen for private markets. I mean the definition of a private market is that .it doesn’t exist. So how do you determine what cell side research is in determining in what to invest in and what to not. How do you determine what’s a good company or not? I don’t think those questions are going away any time soon, so we may have a better technology layer as it relates to proof of ownership. We can create products to generate liquidity for that marketplace but I don’t believe we’re ready as and industry overall to even consider like replacing the financial universe as we know it. We have a long long way to go. I would also add that institutions and institutional money is going to be the lightning bolt moment that’s going to happen.
I think where, you know Jeffrey Moore has a great illustration called crossing the chasm, right, and the first year or two you have the early adopters so around 2% that are really innovators and those are the only sponsors and investors getting involved, right? So you have this initial sort of slow growth and then eventually as you start going mainstream you start seeing it ramp up. Now what I would say, I think, people typically underestimate what would be achieved in one year and overestimate what will be achieves in 10 years. And so I do think that, you know, it’s going to be very exciting year next year with a lot of sponsored deal flow coming interested in this. Because their investors are saying they have interest in liquidity, the bigger challenge and the bigger question mark is, how quickly will investors, uh, traditional investors, institutional investors, and crypto funds, how quickly will they, sort of accept this new structure and start adopting?
And yeah we’ll have to wait and see. But from initial indications there’s a lot interest so one of co-founders, uh, who’s spent his whole life in a commercial real estate space at an American capital group. The last conference he was at for real estate, the most well-attended, highest-attended panel was real estate on the block-chain. He was talking about watching technology, how he can apply to real estate. So we know there’s a huge amount of interest there, it’s just how quickly will EBD rest for the masses to move in. It will probably be a couple years.
But I do think we’ll see some really nice growth next year. For sure.
I honestly think that the year 2019 is going to be the year of the STO’s. More and more companies are going to be taking advantage of Reg A and the United States. Reg A’s outside the United States, it’s just a simpler process all together. But again it’s very important for the regulator to step into this process and to make it simple for the companies to do so. From what I heard I don’t know if it has changed. The last time I spoke to one of our legal consultants, basically there hasn’t been a single token Reg A that has been approved by the SEC. Certainly makes it very difficult for the companies to make this an accepted way to raise an equity. So I hope that the regulator and the United States takes a more educated and active approach to enabling this business development.
You know end of 2019 will be kind of like the second state. I think that today where we are is that there is very few security tokens actually issued on the project. You hear a lot about the people “oh I’m doing this security token project,” but people have actually raised the money and issued a token for investors that has not really happened. There’s very few out there like the ones we’ve just mentioned.
I think by end of 2019 I’m expecting that number will be above 100.
I’m expecting a lot of them come from us but also obviously from our competitors that also working very hard, you know and making things happen.
So I think that’s my number one prediction. 100 security tokens.
100 tokens by the end of 2019?
By 2019. And then my second prediction.
Oh number two, here it comes.
Is that we going to have more than 10 exchanges trading security tokens.
Which is another important thing because you need that part of,
Yeah the liquidity.
The system as well, the liquidity. So I think that we have like 3 or 4 exchanges that we loaned by the end of the year and the number will double or more in 2019.
Well I think there’s going to be some really good moves in 2019 from governments, and banks, and you know just around the world there’s large moves being made. But they take a while to really come into play and I think also one of the things, what I’m really hoping is that crypto currency can help Venezuela out of its crisis. And I think that the world is watching that and if that works then that’s going to be a huge bomb shell that goes off because it means that this whole, you know hyper-inflation game can actually be like polio or some kind of like disease of the past that we can vaccinate against.
And that’s just going to unleash a tremendous amount of energy that has been locked up in these kind of faulty systems.
Think it will probably be huger, I know everyone is going after the private/unregistered security marker right now but I think what we’re going to see is a number of them that are playing in that space. They’re going to go for full registration.
Yup, we talked to some today actually.
So it’s going to happen and then it just opens the floodgates at that point. So it’s a ton of money out there, people want to see that. They’ll feel more comfortable investing at that point.
So I’m looking forward to that.
It will not be giant, it will not be gone. There’s still a long way to go. I think we probably need another 6 months before we see any true STO Security Token Exchanges really take flight. Once we have that I think we’ll start to see the proliferation of more obscure assets, whether they’re cars, real estate, what have you, they’ll start to be trading soon.
Its really an interesting time because we are seeing companies and exchanges like the NASDAQ is looking at how they can become more of a player in the token world, so that’s naturally going to be a security token. Instead of locking a whole group of investors that are institutional investors, point basis custodian capabilities, we just see there’s a massive movement. And that money will flow in because the security token, or I should say digital security side, gives a lot more liquidity to a position with a company. And it might not just be the equity of the company. It might be specific offerings like, ours isn’t the equity of the company, ours is against a specific area of focus that investors can come in and benefit while the company increases in value and participated more in this community. But then have that liquidity size. We think security area is going to explode, yeah.
I think it all depends on whether we found that one use case. And so we’re just seeing a lot of emerging technology over the last century, is that we find that one use case that really seems to blow the door wide open. And so if we found that use case of security tokens and regulation clarity happens in the next month or two, or six months and it just opens the door to all these new investment opportunities, I think we could be in a tremendous situation with really high market caps and really successful companies in a year. And we haven’t found that use case yet, then let’s still work towards it and hopefully by next year we’ll have figured it out because a year in this space is quite a long time.
It’s a long time.
There’ll be a lot of competitors, they’ll have exchanges, they’ll add a lot of custodian services, compliant services. Not enough, definitely not enough. And I really think the more that you’re in the market, there are a lot of people coming from traditional markets, coming with compliance, coming with banks, doing like cryoto fiat, so I really think the more people will come to the industry, the more competition will be here. Competition is always good, so we’ll have that move.
The industry is going to continue to evolve, there are going to be some you know either brave people who are willing to be pioneers, or some foolish people that you’re going to have people out there. Some people are going to take some arrows. The SCC I think is going to slowly give some guidance and you know the industry is going to evolve with or without the regulators. I mean that’s what happened with the internet, and that’s what’s happened in a number of industries. Yeah people are finding it isn’t always better to ask forgiveness than permission, but we’re still going to be seeing a lot of people with that kind of attitude.
I don’t know that it’ll be substantially different. I think it’ll be, I think some of the paths that have been forged will, all those will be, you’ll kin of see the ball moving forward in a little bit in each of the areas. There’ll be a little bit of progress on custody with some of the bigger changes they need to solve for institutional clients that want to deal with security tokens. So there will be a little bit of movement on issuers trying to find better structures, right? Because at the end of the day token securities are just securities. And they have to be good investments, well structured, good assets. It’s not enough that the technology is there. So I think those are things that we might see improvements on in about a year from now.
I mean I think realistically you know we will probably be in the billions of dollars. I mean just with the issuances we’ve been working on, you know get to those types of numbers.
I think what will be interesting in that window, that 18 month window is how much liquidity gets created and how people create new really creative ways for liquidity. Like we had a conversation recently with a company that’s doing, they want to basically lend against securities. Which makes sense, right?
Because in the real world today you can borrow against a real security, why wouldn’t you be able to borrow against a digital security?
That’s a huge industry.
Exactly. So that’s something we think we’ll start to see happen and that’s another type of liquidity that maybe people aren’t thinking about.
Well looks like we have a lot to look forward to in 2019 as the industry continues to thrive. Be sure to stay with Security Token Academy as we bring you the most comprehensive security token coverage from around the world.
And mark your calendars for our next security token meet up. It takes place Thursday January 31st, inside Maggiano’s at The Grove in Los Angeles. It’ll have free food, drinks, networking and more. You can find all the details on our website, just click on the events page.
You can also visit us on our meet up page at the address on your screen. We had a great turnout last time so be sure to RSVP to secure your spot to this free event. Hope to see you there.
Alright that’s it for this special holiday episode of Security Token Insight. Be sure to follow us on Twitter, Facebook, Telegram and Medium and don’t forget to subscribe to our YouTube page so you don’t miss out on any of our videos and expert interviews. I’m Amy Wan.
And I’m Adam Chapnick. And before we go a big thank you to our platinum corporate members Meryl Lynch and Securrency. We invite you to learn more about our corporate members by clicking on the directory page on our website. And for everyone here at Security Token Academy, thanks for watching and have a great holiday.
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