In recent years, venture capitalists have used the term “unicorn” to describe the statistical rarity of a startup that’s achieved a $1 billion valuation.
However, these “mythical” startups are no longer uncommon.
Finding Value In Spin-offs
Some of the best trades during the past few years have been spin-offs. Of course, I'm taking about deals like Kraft Foods Group Inc (NASDAQ:KRFT) / Mondelez International Inc (NASDAQ:MDLZ) and ConocoPhillips (NYSE:COP) / Phillips 66 (NYSE:PSX) both of which have continued to achieve record performances year-to-date. What's more, there are a number of spin-offs Read More
Globally, there are now 276 companies with the billion-dollar unicorn designation. Some of them are already household names, like Uber, Airbnb, Pinterest and Dropbox.
Collectively these startup unicorns carry a $967 billion market valuation on an aggregate investment of $200 billion.
That’s nearly a 400% return in just a few years.
But none of these returns have accrued into the brokerage accounts of the everyday investor. Rather, these investments are restricted to venture capitalists and high-net-worth investors.
Instead, everyday investors have found themselves “holding the bag” when once-hot startups like Snapchat and Blue Apron finally made their way to the public markets, and proceeded to fall 50% and 65% from their opening prices.
It’s no surprise that investors are anxiously clamoring to get in on the ground floor of the next moonshot.
Enter the Crypto Markets…
Bitcoin may be the largest and most discussed crypto. However, it’s only the first application of blockchain technology.
While bitcoin posted a 1,485% gain in the past year, the decentralized platform for smart contracts known as Ethereum skyrocketed 12,822% in that same time period. Conceived by then-19-year-old Vitalik Buterin in 2013, the Ethereum platform has underlied the creation of 1,000 new blockchain projects.
As entrepreneurs find new ways to apply blockchain’s innovative technology to solve real-world problems, these ideas are being met with waves of new capital from nontraditional investors.
Current investor demand for these projects is drastically outstripping the supply of companies, and these are the necessary ingredients for a financial mania.
The speculation that investors can get in on the ground floor of the “next big thing” is leading to price rises that markets have never witnessed in history.
This is unleashing a new type of startup unicorn: the “cryptocorn.”
At last glance, there are 41 blockchain projects valued at over $1 billion. A year ago, bitcoin stood alone in the cryptocorn pen.
In the same time period, bitcoin’s crypto market share has dropped from 90% to 33% as the likes of Ethereum, Ripple, Litecoin and Bitcoin Cash begin to rival the crypto throne.
A Digital Gold Rush for the Ages
This new ecosystem of alternative cryptocurrencies, known as “altcoins,” are the hottest ticket in town.
Altcoins arrived on the scene via a hot, new funding mechanism called initial coin offerings (ICOs ), which are like a hybrid of venture capital and initial public offerings for stocks.
According to CoinMarketCap.com, the number of altcoins outstanding swelled from 64 in early 2014 to 1,398 today. In the past year alone, the total market capitalization of altcoins grew 25,000%, from $2.2 billion to over $500 billion.
In most of these crowdfunding campaigns, investors exchange either bitcoin or Ethereum for the new coins, which then can be used within the specific altcoin network for purposes such as trading storage space, renting computational power or anonymous transactions.
The allure of ICOs is that investors are able to access early-stage companies with public market liquidity. Up until the past few years, investors had no access to early stage tech companies, which is where most of the growth occurred, leaving the biggest gains to the venture capitalists able to invest in earlier rounds.
The flood of new investors has caused three of the most popular exchanges — Bitfinex, Bittrex and Binance — to temporarily halt new users. These halts were issued as China-based exchange Binance reported that it was opening 250,000 new accounts a day.
Bitfinex has already announced that new accounts can be registered on January 15, as this move is temporary until these exchanges can add infrastructure upgrades. However, for crypto investors unable to wait, there are accounts available for purchase on eBay ranging from $200 to $10,000.
Like the dot-com bubble of the late 1990s, the current altcoin market likely contains the crypto versions of Google and Amazon, but it’s also likely to contain a lot more duds a la Webvan and Pets.com.
The recent surge has produced “blockchain for dentists” (Dentacoin) and “blockchain for Christians” (Jesus Coin), which “boasts the unique advantage of providing global access to Jesus that’s safer and faster than ever before.”
While this mania will likely go further than rational investors anticipate, the end of it will likely coincide with an increased demand for Jesus Coin.
Editor, Banyan Hill Publishing