The investment climate across the globe is undergoing fundamental changes. Technological advances have made investment advisory services remarkably versatile. Since 2014, the financial planning industry has grown remarkably at over 4.8% annually to a current value of about $60 billion in the USA alone. Globally, it is worth hundreds of billions.
Regardless, this sector is still making advancements to catch up with developments in this industry. This is because any service industry has to respond to market changes to remain relevant. One of the remarkable leaps in investments is cryptocurrency launch fundraising operations called Initial Coin Offering (ICO). ICOs raised a staggering $11.4 billion in token sale projects in 2018. This is despite the fact that the coin market went through a rough slump through much of the year.
Alternative Funding Models
Notably, ICOs have declined since because of concerns ranging to securities regulations to fraud issues with some ICOs. However, the fundamental crowdfunding model has endured. Now, cryptocurrency exchanges host the tokensale themselves.
The operation works similar to a company Initial Public Offering (IPO) on stock exchanges. Think about that for a moment; entrepreneurs can effectively raise capital without necessarily relying on traditional bank lending. This funding model is truly remarkable and has taken a life of its own.
IEOs are now quite popular as a mode of crypto launch. This means that crypto exchanges like Bittrex have a more assertive role in the market. Remarkably, IEOs raised a combined $262 million in the first half of 2019.
This means that crypto entrepreneurs have a viable and reliable channel for raising the funds they need.
Similarly, investment platforms in the real world can leverage blockchain technology to raise capital for investors. This represents a remarkable adaptation of an innovation many thought would never have meaningful use in the real world. Instead, the immutability and versatility of blockchain technology are disrupting industries from insurance, data management and certainly finance.
The Need for Investment Advisors
Investment advisors and asset managers can equally harness this technology in their provision of alternative finance. Traditional investment advisors offer services that range from business planning, portfolio management, and even consultation services.
Incidentally, blockchain crowdfunding is eerily similar in terms of its market role. A combination of these two, analysts project, would see the industry potentially grow from the $60 billion value it currently has. Needless to say, access to finance for more people who could miss out on traditional banking services is a bonus.
Building on that front, investment advisory services essentially leverage professional financial and legal expertise to guide investors through the investment process. Moreover, an investment advisor can sometimes offer smart loans in a way that cuts the bureaucracy of traditional banking.
As it is, banking normally necessitates bulky paperwork, provision of guarantees as well as bad credit history hindrances. This makes meaningful lending only accessible to a small amount of mostly established investors, not startups. A more dynamic crowdfunding model can make other asset managers and investment advisory services more competitive.
Some institutions are already looking at the option of blockchain IEOs to harness the power of tokenized investments. Uniquely, an IEO will not focus exclusively on startups and young technology companies like crypto IEOs. Instead, they tokenize a ready-made and booming business.
However, it goes without saying that the actual Return on Investment (ROI) will depend on how investors use generated tokens. Nonetheless, the bottom line is that businesses can leverage these innovative funding models to raise more capital.
This way, they can go around the bottlenecks of credit for traditional banking and even scale up operations. Overly, tokenizing fundraising is an attractive proposition for the financial sector. The opening of a new channel for raising capital for burgeoning entrepreneurs can have far-reaching implications.
Across the world, financial inclusion is still a challenge with over 1.7 billion people remaining unbanked. In addition to that, billions more are locked out by the rigid lending practices of traditional banks. While most businesses have access to banking services, raising meaningful capital is not a universal possibility.
This is why tokenized crowdfunding can provide an interesting channel for such entities. Moving forward, it will be interesting to see how professional financial platforms across the world handle this phenomenon.