In a new piece for Hackernoon, cryptocurrency analyst Jesus Rodriguez gives his reasons on why we can expect a crunch for investors in the security token industry. According to Rodriguez, most security token startups will not make it to the series A round of venture capital financing.
Here at The Tokenist, we have been following Jesus Rodriguez’s commentary on the security token space closely for some time now. However, his most recent article has been met with some controversy: will the security token industry experience a big crunch due to its inability to keep up with market trends? Rodriguez seems to think it’s inevitable, so let’s explore then what we can expect to see from this burgeoning new market in near future.
The “Series A” Crunch
A series A round is the name given to a company’s first significant round of venture capital investment. It’s a critical point for any company since it establishes its foundation moving forward. However, there is reason to believe that many security token startups might not make it to this stage.
The reality of the situation is that, first and foremost, most venture funds have not placed bets on the security token industry and are waiting on the sidelines for the market to develop. Any small amount of funding that security tokens have already received has been due to the market boom of 2017, but that funding pool is quickly emptying out. Not to mention, most investment and crypto-related venture firms are experiencing their own capital crunch right now due to vastly underperforming in this market.
When it comes to security tokens, we have to address the elephant in the room. The reality is that the bearish market winter for the cryptocurrency space as a whole has not made venture firms eager to invest in the security token industry. That’s why Rodriguez is of the opinion that we just might experience that big crunch sooner rather than later.
On top of everything else, there have not been many standout security token projects. Most of those that are currently in development seem to have a limited revenue model, which makes it even more difficult to justify a series A investment.
The Consequences of the Crunch
If the “series A crunch” goes as predicted, then we can expect many security token startups to begin to close their doors in the coming few months due to lack of funds.
Because platforms for security tokens are so underdeveloped right now, we can expect that investments in trading platforms will be much more attractive to venture capitalists than security token offerings. This is another reason why security token projects will be forced to shut down. We can also expect more stablecoins to enter the market as big players look for ways to lessen the volatility and decouple themselves from Bitcoin.
Only a handful of security token startups will make it to the next phase of the market. With the emergence of the right infrastructure, we can expect to see a rich ecosystem for security tokens to develop in the future, but not without a crunch to clean out the house first.
What do you think about the ‘series A crunch’ prediction for the security token industry? What’s in store for the space for the next year in spite of bearish market winter? Let us know in the comments below.