The virtual world of cryptocurrencies has become a difficult one to ignore over the last 12 months, with cryptocurrencies grabbing the headlines delivering investors with unprecedented exponential gains of which have not been seen in other asset classes.
While start-ups have embraced the world of initial coin offerings (ICO) and cryptocurrencies for some time, it has taken some time for established blue chip companies to seek alternative means of fundraising to fund projects.
Telegram and KODAK have both recently announced plans to launch initial coin offerings to raise funds in order to incorporate blockchain tech into the respective companies’ offerings.
When considering the fact that more than $6bn was raised last year through initial coin offerings, up from close to $300m in 2016, it may be surprising that it’s taken so long for a blue chip to veer off the debt capital markets path of fundraising.
KODAK announced the January 31 initial coin offering on January 9 and with it came a 119.36% share price rally on the day of the announcement.
Telegram ICO announcement was less of a surprise to the markets, with the general consensus being that Telegram’s ICO could become the largest ever, the ICO slated for March of this year.
Are ICOs Mainstream?
In 2017, the number of initial coin offerings totaled 886, rising from a mere 29 in 2016. The jump in ICOs is telling, with start-ups and smaller sized companies taking advantage of the cryptomania to raise capital for new projects and endeavors.
The cryptomarkets have yet to see an established company enter the ICO market to raise funds. Speculation over whether the entire market is a bubble ready to burst had likely held blue chips back from entering the fray, but companies can no longer ignore the benefits of the ICO markets and the appetite for cryptocurrencies.
KODAK was established in 1888 and is unquestionably the oldest company to launch an initial coin offering and develop its own KODAKOne blockchain tech in partnership with Wenn Digital.
With Telegram launched in 2013, there were fewer eyebrows raised over the ICO announcement itself, while many have been taken aback by its ambitious target to raise $1.2bn. Fundraising avenues for Telegram would previously have been through venture capitalists and private investors, had there been a need for additional funding, with Telegram having been funded by private investors ahead of its 2013 debut.
While funding avenues differ for the two, both are considered mainstream entities however and the markets will be watching the initial coin offerings closely. Success for the two will more than likely change the way in which blue chips raise capital and, when considering the fact that blockchain tech is likely to become part of the mainstream, blue chip ICOs are likely to also take the cryptomarket from a speculative trading platform to one that has household names more commonly associated with the likes of the New York Stock Exchange.
Banks with sizeable debt capital markets operations will be getting a little anxious. KODAK’s decision to raise funds in the ICO market, issuing KODAKCoins and not in the debt capital markets could lead to a flood of blue chips moving away from issuing bonds in the debt capital markets.
There are certainly some benefits to such a shift, with bonds issued being a debt obligation reflected on a company’s balance sheet. An initial coin offering is quite the opposite and that will surely lure others into the market. It will take time, but Satoshi Nakamoto may actually succeed in bringing an end to investment banking and few will shed a tear over such an outcome.
A big Bet for KODAK
The markets are watching and how KODAK’s ICO performs will be of great interest. It wasn’t long ago that KODAK was on the ropes, with KODAK filing for bankruptcy protection back in 2012. Digital photography was the root of all evil for KODAK. The Company’s plans to revolutionize the photography industry with its KODAKOne blockchain tech is one thing, raising the capital through an initial coin offering is something altogether different.
Success and the floodgates will open and KODAK will be etched in history as the name that came back from close to extinction to change the way in which multinationals raise capital, as more look to embrace blockchain tech to advance product and service offerings.
Failure and KODAK will be a cautionary tale, with many likely to suggest that the company should have given up the fight back in 2012. Sitting back is not an option for KODAK, so while some may consider this a risk too great to take, KODAK shareholders clearly think otherwise.
Eastman KODAK’s share price rallied from a pre-ICO announcement $3.10 to a January 10 $10.70 high, before closing out the week at $9.20. That’s a 197% gain in a single week, the likes of which are more commonly seen in the cryptomarkets.
It goes without saying that KODAK’s share price will be heavily influenced by the end of January ICO. Those seeing KODAKOne as the platform that will bring KODAK back to the forefront of the world of photography will undoubtedly take up the offering, but the risk of failure is ever present and KODAK’s been there before.
For Telegram, the risks are far less significant, with the company already having more than 200m users. Telegram customers are unlikely to shun the Telegram app in the event of an ICO failure, with the purpose of the ICO being to include additional services to the existing app using blockchain tech.
Both companies have a presence in Israel, with KODAK CEO Jeff Clarke having taken an interest in the start-up nation after taking over in the wake of the company’s bankruptcy. Israel’s status in the world of tech has seen many companies including ACM, Alibaba, SAP, and KODAK itself acquire tech companies established in Israel. The shift in sentiment towards ICOs could incentivize more Israeli start-ups to enter the ICO market, which is becoming ever more mainstream. It could all come down to how KODAK and Telegram prevail.