“If you’re stupid enough to buy it, you’ll pay the price for it one day.”
This is a quote from JP Morgan Chase CEO Jamie Dimon. To say that Mr. Dimon isn’t a fan of cryptocurrencies would be an understatement. Cryptocurrencies are bringing about the decentralization of the financial industry and in some ways, big banks are beginning to feel threatened by it. While bitcoin has garnered the most attention, the biggest threat to banks on Wall Street may come in the form of ICOs. Startups like LiveEdu are using an ICO as an easier means of raising capital.
Traditionally, big banks have overseen IPOs, taking a promising company public and making money from selling shares of the stock. If it increases in price, then the bank makes money from selling the shares. If the stock doesn’t increase in price then they still can still make money from the underwriting process. In the case of unicorn startups such as Facebook , Twitter, or Snap, this can represent a huge windfall for big banks. But what happens if more startups begin to go the ICO route?
Banks were the go to way for startups to raise capital. However, that is already beginning to change. With one month to go in 2017, ICOs have raised a total of $3.6 billion. In 2016, the total raised by ICOs was only $96 million.
While that pales in comparison to the $4.1 billion raised by US IPOs in Q3 of 2017 alone, it still represents a huge shift. The number of IPOs and amounts raised have decreased in the last year, while ICOs have increased exponentially.
If early-stage startups as well as more established ones continue to launch ICOs, then it threatens the traditional banking system that Wall Street has currently established. It’s likely that we’ll see more than just Mr. Dimon expressing displeasure for cryptocurrencies and ICOs soon enough.
Do you think Wall Street is worried about ICOs? Should they be? Comment below.