Crypto-Currencies: The New Coin of the Investment Realm?
Even as the Wall Street Journal proclaims cryptocurrencies as the new wave of fundraising for start-ups, the perils of this sort of investment vehicle come into greater focus with the news that CoinDash, an Israeli firm, had its digital asset trading platform hacked, with over $10 million of investor’s money stolen.
Cryptocurrencies are attractive as alternative to investors as an alternative to the traditional path of buying a portion of the venture and waiting for an IPO to cash out.
• They are more fungible – Cashing in and out is possible
• They are still the same bet: Will the venture take off? If so, the currency will rise in value. If not, the currency becomes worthless and the “investment” written off.
Ventures like it because they can retain greater control (fewer owners of the actual firm), and if they create some buzz, can spark continual ongoing injections of capital more easily by selling more currency tokens.
CoinDash is taking steps to limit the damage, promising to replace the lost ethers to their investors. This is important not just for CoinDash, but for the whole crypt-investing ecosystem. Confidence in the sanctity and security of the money invested must remain high, or the premiums ventures will need to pay to attract such investments will rise to compensate the heightened risk profile.
As noted by more than one writer since the incident occurred, this system breach may motivate regulators to protect investors (aka well-heeled taxpayers and contributors!) by creating a regulatory framework for ICOs that mandate baseline technical and safety standards. Investors like the idea that they can move in and out of investments more freely, not necessarily waiting for an IPO, but may be willing to entertain some regulatory oversight that protects them.
Mind you, one of the initial impulses behind BitCoin and its cousins was to avoid regulatory oversight, but once money is lost, people start to complain. The irony is not lost on all of us!