JPMorgan CEO Jamie Dimon is among the critics of both Bitcoin and initial coin offerings. But, properly regulated, they c​an ​be an effective way to raise capital, writes Brian Caplen.

The most interesting of the many crypto currency stats is that initial coin offering (ICO) raisings have surpassed angel and seed venture capital (VC) funding globally. For sure, ​there will be many failures, as there are with VCs. There will also be frauds. But looked at with perspective, ICOs have their use case. 

JPMorgan CEO Jamie Dimon made headlines at the Institute of International Finance annual meeting in October by saying: “I don’t personally understand the value of something that has no actual value. If you’re stupid enough to buy it you’ll pay a price for it one day.“

Jordan Belfort, the stockbroker portrayed in the film Wolf of Wall Street, who spent 22 months in prison after pleading guilty to securities fraud and money laundering, later added to the controversy by describing ICOs as “the biggest scam ever”.

​But a report in The Banker shows a number of legitimate uses for ICOs. We cite the case of cloud storage provider Storj that raised $29.2m in an ICO in May. Token holders have equity in the company, they can use the tokens to get storage space, as well as be providers of storage space and get paid in tokens. 

A white paper quoted in the article identifies five token types – usage, equity, work, community and asset-backed. “Depending on the token, this could include the right to access and use a software application, the right to redeem the token for a unit of currency or a good, the right to receive a share of future earnings, the right to vote on decisions made by the organisation or more,” says the white paper. 

New laws will be needed to classify and regulate ICOs. But in theory, capital raised this way can provide the same risks and rewards as equity. 

Brian Caplen is the editor of The BankerFollow him on Twitter @BrianCaplen

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