Startups turn to Initial Coin Offerings to raise funds

World
Europe

By CGTN’s Xu Xinchen

From nothing but a high-tech fantasy, bitcoin has been making dreams come true - creating millionaires overnight. However, that's not the only virtual currency attracting investors' attention.

Many companies, especially in blockchain businesses, have started to use Initial Coin Offerings (ICOs) to displace the traditional venture capital funding process.

VCG Photo

Red Pulse, a Shanghai-based firm specialized in financial analyses, has decided to replace its renminbi payments with payments in its own cryptocurrency, a virtual coin called the RPX.

The firm hopes to raise 15 million US dollars in an ICO in September, and hopes the switch to digital will appeal to its researchers, as RPX will be convertible to other forms of cryptocurrencies.

“The reason why the token could appreciate and very often does appreciate in value is because the usage of that token continues to rise,” said Jonathan Ha, CEO of Red Pulse. “When people find a token anything for that matter, any sort of asset to be of value. People around them also start to believe that there is a value to it and all of a sudden it all starts to have real value.”

VCG Photo

Red Pulse is not the only startup that has designed its own coin. According to China's National Committee of Experts on Internet Financial Security Technology, there were 65 ICOs in China in the first half of this year, and they raised a total of 2.6 billion yuan (about 380 million US dollars).

Experts say while ICOs might be an easy way for companies to raise funds, the value of the coins will still depend on the underlying business models of the companies.

“The value of a coin still comes from two things. One is its scarcity value, as in the case of bitcoin. And then if there is no scarcity value, it comes down to what people can do with the coin - whether people can buy things with it, and how much value the issuer can create based on its own business model,” said Liu Shengjun, President of China Financial Reform Institute.