Why is crypto winter and financial crisis a perfect time to launch STO?
Withdrawing money and avoiding launching projects is typical behavior during the market slowdown. However, while all of your competitors also act this way, a good strategy would be to do the reverse thing, launch STO and start fundraising, as the crisis is the best time to create projects and seek investments.
Still, when all assets are falling, you need to craft your offer carefully to persuade investors that your business will succeed. An excellent approach is positioning the investment a company offers as a unique asset class. One unique structure to distinguish a desired offering from everything else on the market is a security token.
Disclaimer: This article is not financial advice. The information we provide on particular assets’ financial performance is solely our opinion based on our market observations and analysis.
Why are traditional asset classes going to underperform?
It’s important to launch an offering using the right asset class because most asset classes will experience a significant drop in value. The most obvious victim is cash: it is subject to high inflation and currency devaluation. We can see that in the Euro, which is currently falling due to the war in Ukraine; the same fate is expected to meet the other currencies as the market recovers from a hangover and money printing causes inflation. Therefore, preserving your savings in cash is not a safe option.
Corporate bonds are another normally safe asset class frequently invested in, which in fact is precarious. Federal Reserve bought out an enormous amount of corporate bonds, which consequently made this market unsustainable. As the money printing is slowing down and the interest rates are growing, many companies will likely be unable to pay those out and announce default. This is why corporate bonds are not suitable for investing these days compared to the STO launch.
Nearly for the same reason, public equities perform poorly too and will continue falling. Firstly, the whole public market was overheated over the last couple of years, leading to a valuation multiple that is too high. Because of this, while the market is returning to its normal state, their multiples will consequently fall. Additionally, companies’ revenues are also falling due to inflation and reduced consumer purchasing power. The markets will most likely continue falling after the publication of quarterly earnings reports, and taking growing interest rates into account, the situation will continue worsening for at least one more year.
Corporate bonds and public equity go hand-in-hand in this case, as corporate defaults will lessen the stock price, while the company’s lousy performance increases the probability of default.
Lastly, investing in crypto is not the best idea at the moment too, although our logic here is a bit more nuanced than typical. We disagree that crypto is worthless because it isn’t backed by actual cash flows or assets. The value of cryptocurrencies derives from the utility of using these currencies in web3 solutions and ecosystems. However, web3 has been mostly focused on financial applications, so as the intensity of trading and speculation plummets, so does the value of typical crypto tokens. Moreover, many tokens had unstable financial models with zero resilience to bear markets. Their failure further contributed to a general decline.
Why are security tokens an excellent asset class?
Security tokens are a fantastic asset class as they allow investing in private markets, which have received much less investor attention so far. Consequently, they weren’t overheated with vast amounts of money, which, respectively, is why they won’t fall so dramatically.
On the other hand, security tokens are more directly connected to the real economy than crypto tokens. They can be backed by real assets like commodities, private equity, debt, real estate, and so on.
Even private companies indeed get affected negatively by the crisis. However, provided that security tokens will be newly issued, they won’t experience a decline as the token price already includes a negative earnings forecast.
How to communicate investing in security tokens with investors?
Despite security tokens being a great asset class, they are still relatively unknown. Therefore, it’s vital to frame the features and benefits in the right way beforeyou launch STO.
An important goal is to distinguish security tokens from other crypto assets. Security tokens behave more like private equity than crypto, which gives them robust fundamentals. Features they inherited from crypto include better liquidity and automation, not unbalanced economics. Consequently, they are not affected by crypto winter as much.
It’s preferable to focus not on the blockchain aspect of tokens but on their economic nature. For instance, you can position convertible debt tokens simply as a convertible note with enhanced liquidity, which is achieved thanks to being preserved on the blockchain. Rhetoric like this will help you capture investor interest initially and then multiply it by explaining the benefits of enhanced liquidity.
On a more detailed note, the specific benefits can be embodied in a diverse investors’ pool and more straightforward transactional processes. Considering the first, blockchain infrastructure allows businesses to deal with several bigger and hundreds of smaller investors simultaneously, instead of just one or two major investors. The possible number of counterparties for a transaction grows, as a result, making it simpler to trade and boosting the volume of trading. They may be from various countries and provide varying investment amounts. On account of the second, red tape is removed, and all essential steps may be completed more quickly thanks to the securities’ accessible digital form. It becomes feasible to sign, modify, or transfer anything in the blink of an eye. The minimum trade amount is decreased thanks to transactions being simplified, more automated, and cheaper. They are also finished more frequently as a result of this.
It’s not only a communication strategy that makes a splendid offer to investors. Things like token design, legal structure, as well a range of other aspects matter as well. Stobox can help you accomplish these tasks as a consulting and technological company. Feel free to book a complimentary 30-minute consultation to understand how we can help you prepare for fundraising in the difficult circumstances of financial crisis and crypto winter, turning the market situation to your advantage.