Dear Readers, As the fall semester of 2017 kicked off, EBS Invest went through a lot of exciting changes. Ex-Presidents Tobias Holtmann and Lukas Schenker handed over the command to Lars Richter and Jose M. Rodriguez Azparren. The EBS Invest student initiative is organized Departments, Research
in so
different besides
Department
the the
Corporate Relations, Marketing and IT Department had to be newly formed as well. As the executive team sat together for the first time, we all shared one vision: Taking EBS Invest to the next level. We started off with a presentation about financial statements and ratios for the roundabout 100 active ressort members. Since then the students started holding short pitches about stocks and even ETFs for the EBS capital investment fund on their own. The Corporate Relations Department enabled the students to listen to 4 profound presentations about capital markets, securities, derivatives and investment philosophies, each 2-hour long. Afterwards the participants had to take a test in order to achieve the renowned “BVH Börsenführerschein”. Meanwhile the Marketing Department has set up an Instagram account (which you obviously are highly recommended to follow) and started working on EBS Invest merchandise. In early December BKB Steuerberatungsgesellschaft Wirtschaftprüfungsgesellschaft held a highly interesting presentation about risks managers have to deal with. We would like to emphasize our gratitude for this exclusive insight! We, as editors, decided to revamp the newsletter and make it more nouveau and engaging. When it comes to the financial landscape, throughout this year, there has been one word that has been creating major impact, leaving people awestruck and compelling them to talk more about it and even think about investing in it. That word is no other than- Bitcoin. Bitcoin has been the show stopper and newsmaker of this year. Hence, we have kept this year’s theme as Cryptocurrencies. Despite of their packed schedule, members of the research team went out of their way to come up with articles related to Cryptocurrencies. We are certain that anyone who is novice in this domain of fintech will gain a considerable understanding after going through our articles. Three letters which heavily preoccupied us over the last months: BTC. The last weeks before our official editorial closing on 7th Dec 2017 Bitcoin and other Cryptocurrencies experienced a massive rally – All people talked about it, but does everyone understand
it? In order to bring everyone on the same level of comprehension we’ll illuminate the functionality, chances and risks of Bitcoin throughout the next pages. Finally, we would like to thank this edition’s team. 16 awesome students with all kinds of backgrounds and knowledge made extraordinary effort doing research and writing articles for our first newsletter. Furthermore, we are thankful for EBS University providing us with the necessary educational environment. This year also marks the first time that EBS Invest’s Research team have done an international collaboration. We would like to extend our sincere gratitude to Ms. Annisa Qurratu'Ain for lending her expertise in designing our cover page and our magazine’s new logo. Annisa is currently pursuing her Bachelor degree in Design Communication Visual from Paramadina University in Indonesia. Gautam Kumar Head of Research Johan ten Doornkaat Koolman Head of Research
EBS Invest Research wishes everyone Happy Holidays!
DISCLAIMER: EBS INVEST AND BULL & BEAR ARE NOT AFFILIATED WITH ANY COMPANYS OR SECURITIES MENTIONED. FURHTERMORE, OUR ARTICLES SHOULD BE UNDERSTOOD AS FOOD FOR THOUGHT, NOT FINANCIAL ADVICE. WE DO NOT RECOMMEND SELLING OR BUYING ANY INVESTMENT MENTIONED AND DO NOT TAKE ANY LEGAL RESPONSIBILITY FOR CONCLUSIONS YOU MAY DERIVE FROM OPINIONS DISPLAYED IN BULL & BEAR.
Content I.
M&A Trends 2018 Despite the overall newsletter’s topic Gautam (1st from left) sheds some light on the future trends related to global market of Merge & Acquisitions.
II.
Cryptocurrencies Marc-Philippe (3rd from right), Ping (2nd from left) and Philippe (not in the picture) explain what Cryptocurrencies are and how they work in an understandable way.
III.
Success of Bitcoin Bitcoin-Bulls: The chances BTC might offer in the long run are reflected by Luca (6th from right), Jan-Raphael (3rd from left) and Dimitri (6th from left).
IV.
A Fool and His Money Giving a bearish view on the hyped Cryptocurrency Johan (1st from right), Pascal (4th from right), Benedikt (2nd from right) and Max (5th from left) doubt the sustainable value of Bitcoin.
V.
A Good Opportunity to Burn Your Money Finally, Chances and risks considering Initial Coin Offerings (ICOs) are critically reflected by Jannis (5th from right), Adrian (4th from left), Justus and Tijen (both not in the picture).
M&A Trends 2018 Hello readers! The theme of this edition of
markets and even about the fascinating
Bull & Bear is Cryptocurrency and here you
world of hedge funds.
are reading the first article, and to your
Let’s get started with Germany, the M&A
surprise, this article pertains to the Mergers
market has been steady, however, we
& Acquisitions market. I am not trying to
observe
mislead you, but I am just following a
that
there
has
been
an
approximate downfall of 14.13% in number
tradition of Bull & Bear of including one
of deals and 34.22% in deal volume in 2017
market report. In the later editions, you will
as compared to the previous year.
get insights about equity & debt capital
When it comes to the global outlook, Deloitte’s 2018 M&A Trend report suggests that technology acquisition will be one of the most prominent drivers
of
M&A
pursuits.
In
their
study
approximately 12% of the respondents concurred that digital strategy will be the driving force behind M&A deals in 2018. Another important aspect highlighted in this report is regarding divestiture, about 78% of the respondents were of the opinion that they would shed their business next year. 68% of corporate respondents
and
76%
of
private
equity
respondents anticipate that the deal volume in 2018
will
increase
gradually
and
will
be
considerably higher than that of 2017. Majority of respondents also said that their deals were working out. More than 6 in 10 respondents (approximately 63%) say they now incorporate the use of nonspreadsheet-based M&A technology tools as part of their deal processes. The respondents cite a plethora of benefits. The use of these tools makes post-deal
integration
smoother
and
faster,
reduces costs and conflict, and shortens the time it takes to complete them.
Gautam Kumar
400 300 200
0
2017 (Dec.…
Number
2015
2013
2011
2009
2007
2005
2003
2001
1999
1997
1995
1993
100
Value of Transactions (in bil. EUR)
600 500
1991
Number of Transactions
Mergers & Acquisitions in Germany
3500 3000 2500 2000 1500 1000 500 0
Source: Thomson Financial, Institute for Mergers, Acquisitions and Alliances (IMAA) analysis
Majority of the previous M&A trends
trillion in 2017. In the US, deal making is set
reports
industry
to rebound in 2018 after a year of “wait and
convergence in the year ahead-mainly in
watch” following the election of President
related businesses or vertical integration.
Trump in November 2016.
have
suggested
Financial services, ranks high as an industry most likely to experience convergence, with 38% of industry professionals predicting the
sectors
of
private
equity,
asset
management, insurance, real estate, and banking and securities as likely to converge. Life sciences and health care also rank high. Energy-Construction, Manufacturing,
ConstructionRetail-Technology,
Telecommunications-Technology are the major pairs of industry that are likely to emerge as converging industries in the future.
Baker McKenzie forecast’s M&A to reach US$856 billion in 2018, then drop in line
More than 90 percent of respondents say
with
they will continue to engage in cross border
following years. On the Asian domain, the
transactions. However, dealmakers will be
Chinese
more selective. It is predicted that Canada
outbound
and the United Kingdom will continue to
M&A activity in 2017.
top the list of foreign targets for private equity
respondents
and
corporates
combined.
an
economic
slowdown
government’s investment
in
restrictions slowed
the on
regional
However, with the macroeconomic policy of China is more outward-looking and its policy agenda requires greater outbound
Global
investment. Therefore, the M&A activity is
Transactions Forecast 2018 suggest that
predicted to peak at US$754 billion in 2019.
total global M&A will rise to a peak of
In Middle East and Africa, the forecast is
US$3.2 trillion in 2018, up from US$2.6
around US$41 billion while in Latin America
Baker
McKenzie,
in
their
it is predicted to peak at US$134 billion in
Are you someone who is still struggling to
2019.
gain
In a nutshell, companies are sending strong signals that they intend to aim for bigger M&A targets in 2018. The dealmaking process will look dramatically different as
an
understanding
about
Cryptocurrencies? Fret not! Our next article will break down the definition and working mechanism of Cryptocurrency in a layman fashion.
innovations in diagnostic tools continue to develop.
By Gautam Kumar Head of Research
EBS INVEST TEAM Chairmen José María Rodríguez Azparren & Lars Richter
Heads of Corporate Relations
www.ebsinvest.com contact.ebsinvest@gmail.com
Ann-Kathrin Kopf & Maximilian Bechtold
Heads of Research
www.linkedin.com/ company/10509796 /
Johan ten Doornkaat & Gautam Kumar
www.facebook.com/ 100011763963626
Heads of Marketing Alexander Rauh & Theo Goldsmith
www.instagram.com/ ebs.invest
Head of IT Norajr Hakopov
Check us out!
Cryptocurrencies
With the recent reached milestone of
It was published in 2009 by the synonym
$15,000 for one Bitcoin more people than
“Satoshi Nakamoto”. Different from any
ever
the
other online payment method, such as
an
PayPal, Bitcoin and other Cryptocurrencies
understatement to say that most of them
do not need a third party taking part in the
have no idea what is going on at the
transactions between two individuals. They
moment.
are peer-to-peer electronic cash systems
before
are
Cryptocurrency.
Payment
talking
And
methods
it
have
about is
not
always
been
changing, when people first started forming societies they started trading with goods that were important for them. As time went by, special goods and other rare materials like gold, salt and shells were preferred as first
currencies.
They
were
called
“commodity money” because they had a value as materials themselves. In the late 19th and early 20th century it was replaced
which have a network of thousands of users as their functional base. PayPal had the goal to create a secure system for both, the buyer who could reclaim his money if something goes wrong during the deal, and the seller who wants to make sure he is not the victim of a fraud. To accomplish such a system, the third party needs to identify the other parties requiring private information from them.
by “representative money” which had an
Bitcoin
equivalent worth of gold guaranteed by the
decentralized
government, nowadays known as the gold
independent from the supervision of banks
standard, which was applied all over the
and
world. In modern times, fiat money,
pseudonymous and very hard to observe,
receiving
public
and it is comparable with a cash payment
acceptance, became the most popular form
between two persons. The security system
of money. As a backup in the case of a
used
weakening economy it usually has a
Cryptocurrencies is called blockchain. You
functional government and a state bank,
can compare it to a public visible ledger
but history has also proven otherwise.
which stores every transaction ever made
its
value
from
the
In the last few years another form of currency was created. The Cryptocurrencies. The first and most common one, Bitcoin, wanted to revolutionize our payment system.
on
the
other network
governments.
in
Bitcoin
Its
and
hand
has
which users
many
a is are
other
after they get approved. About every ten minutes a new part, a block, calculated by “miners”, is added to the blockchain. Without going too much into detail, they have to solve a mathematical problem while including the transactions. For every block
Marc-Philippe Leitzbach
Ping Wang
mined they get a reward consisting of a flat
compare it to a very volatile stock?
amount and always changing transaction
Or maybe even a good? The Chicago
fees every user has to pay if he wants to
Mercantile
Exchange,
a
move Bitcoins.
derivative
exchange,
just
If someone buys Cryptocurrencies, the most common way to store them is in a personal wallet that is secured with a private key and without it the wallet is worthless. The missing third entity that connects the individual and the wallet, encourages criminal acts because once the Bitcoins are transferred they are no longer in your control and there is no way to get them back. But not all of the Cryptocurrencies have the same idea or rather the vision of being the payment method of the future. Ethereum, the second most popular one, for example uses the idea of the blockchain to create a platform for developers who then can create applications and publish them in the blockchain. Many other companies and banks are currently researching how they can use such a system to secure data and we will be confronted with it even more. We still have to answer the most important question “What is Bitcoin?� Is it really a currency to change the future or can you
commodity recently
announced that they will have Bitcoin futures soon. Can you compare a solely digital thing to an old fashioned good like oil? At the moment, nobody can give a clear definition, and this could be everything or nothing. While Jamie Dimon, Co-CEO of JPMorgan, for example, once was quoted to fire everyone who trades with Bitcoins, others prognosticate a rise up to $500,000 US dollar for one Bitcoin in the next three years. The future is uncertain, and most countries do
not
have
regulations
concerning
Cryptocurrencies or just started regulating them. China on the other hand already banned ICOs and some other related things concerning Cryptocurrencies. Governments are afraid that the anonymity can be used to undermine their regularities or support criminal acts like terrorism. They also rely on the honesty of the Bitcoin traders to pay the taxes. In the USA for example Bitcoins are officially treated similar to stocks for which you have to pay capital gain taxes and it is to assume that only a fraction of the traders follows the regularities. As more and more
companies accept Bitcoin as a payment it
And
might soon be treated equally to other
remember: If you see Bitcoin as a stock you
currencies, at least in the internet, the
might lose everything and also win
market volume will increase even further.
everything but if you invest because you
Governments are in a tight spot because
have the vision of a decentralized currency
they
the
and use it as such then your financial gains
anonymity or ban it completely which
are a bonus and no loss is big enough for
would limit its usage to the black market.
you to give up your dream.
either have to take
away
one
thing
you
should
always
Everything now depends on a few decisions that will shape our future.
By Marc-Philippe Leitzbach With the help of Philippe Braum Ping Wang
Success of Bitcoin
Luca Wombacher
Jan-Raphael Gritzmacher
Dimitri Pickel
The rumors and news about Bitcoin vary a
in a cloud and whatever gets changed, will
lot. Some say that the vast increase of
be visible for everyone else. This method is
Bitcoin’s price due to the rising demand
known as the Blockchain. The code of
creates a bubble which will explode sooner
Bitcoin is limited to a maximum output of
or later. Others say that the system behind
21 million units granting the safety of never
Bitcoin, the so-called Blockchain, has huge
being affected by inflation. This code
potential and the price of Bitcoin might
cannot be changed. Since Bitcoin’s price is
even reach $500,000.
purely driven by offer and demand, it keeps
It all started with less than $0.05 for one Bitcoin in 2009 and recently, it has increased to $15,000. In the year 2017 it increased by over 1,000%, because demand heavily exceeds supply of Bitcoins.
increasing every day. Almost every second day a new record is broken. The increasing demand might boost its price to even further heights in the future. Since Bitcoin transactions are independent of banks, no prime rates or monetary policies can
Bitcoin’s publicity keeps increasing and
influence
known investors as well as reserve banks
transactions or control what people are
accept it as a currency, private capital and
doing with their money.
accounting unit. Newspapers have been calling Bitcoin a great innovation with an inspiring development for years.
The
potential of it as a globally accepted currency expands every day while the price grows at a continuous rate.
its
price,
take
charges
for
Everyone can buy Bitcoins and create his own wallet. This can either be done by creating an account on websites, where you transfer money from your bank account into your wallet. Or you transfer your money at a cash machine, which will accept
Recent articles claim that the total limit of
your dollar or euro notes and save them to
21 million Bitcoins has not been reached
your Bitcoin wallet directly. Your wallet can
yet. Bitcoins are generated through a
easily be saved and managed on any
process called “mining”, which takes a lot of
computer or smartphone you like. Online
processing power. Every mining computer
payments or transactions in stores that
is connected through nodes that save a
accept Bitcoin are very safe and easy. Stores
copy of every transaction. You could
that accept Bitcoin are known to be
compare it to a spreadsheet which is stored
innovative, young and trendy. The only
thing you have to do in order to pay at the
In conclusion one has to admit that Bitcoins
checkout is to show your personal QR code,
and its system are a revolutionary way of
just like paying with a credit card.
handling transactions. Its massive potential
Within seconds, the desired number of Bitcoins can be transferred world-wide anonymously
without
any
taxes.
The
corresponding trade fees are either zero or less than one dollar. Because everyone carries around his smartphone all the time, he will always have money in his pocket, which is protected by fingerprint sensors, passcodes and face-recognition software. This is way safer than carrying around a
can set new standards in our daily lives. Of course, there are always two sides of the story, but the positive weights out the negative by far, especially when everyone starts to trade with Cryptocurrencies and governments get to know them better. Imagine the next generation getting their pocket money to their digital wallet and no one will ever worry about bacteria filled bank notes again.
purse with all your cards and dollar bills.
By Luca Wombacher With the help of Jan-Raphael Gritzmacher Dimitri Pickel
A Fool and His Money
In 1614 the Dutch merchant Roemer
understand the way Cryptocurrencies work
Visscher wrote “Een dwaes en zijn gelt zijn
have invested (so-called dumb money).
haest ghescheijden“ to describe a picture of
Moreover, Bitcoin is a substitute market for
tulips in a polemic collection of emblems.
Chinese investors leaving the unstable and
This roughly translates to “a fool and his
fraudulent Chinese real estate market.
money will be separated” and appropriately
Besides
describes the currently evolving Bitcoin
professionalism there comes a threat from
bubble.
big investors as well. According to experts,
This article will mainly be divided into the topics Regulation Risks and Monopoly Miners. Nonetheless the usual concerns about Bitcoin shall be mentioned at this point:
small
investors’
lack
of
Satoshi Nakamoto is supposed to possess roundabout 1 million Bitcoins and the Winklevoss-twins stated to have bought 100,000 Bitcoins in 2013. If the Bitcoinfounder, the twins or another big investor should decide to throw their Bitcoins on the
There are severe safety issues. Despite the
market, the created supply would massively
safety of the blockchain itself, Bitcoin
exceed the demand, sending the price to
exchange markets are a delicate target for
ground level (and don’t forget which
hacking attacks. Moreover, Bitcoin itself has
psychological impact such an action would
weaknesses as well. For example, “Full
have).
Nodes” are essential for the whole Bitcoin system. They make sure transactions are executed according to the rules. But lack of financial compensation leads to a chronic absence of enough “Full Nodes”.
Regulation Risks Miners
are
automatically
driven
to
approach a break-even point where the Bitcoin price equals the marginal cost to
Bitcoins are no real currency, they are more
produce an additional Bitcoin. While data
like non-cash assets with no physical value,
mining equipment is becoming more and
therefore the value of Bitcoin is intrinsic,
more efficient, the fix costs per Bitcoin are
based mainly on the trust of users and
shrinking, attracting more people to mine,
investors. But how trustworthy is a currency
requiring more electricity. Nevertheless, the
if no one knows who “Satoshi Nakamoto”,
progress
the founder of Bitcoin, is? He published the
number of competitors does not lead to a
first
and
downscale of prices due to the difficult
communicated with the Bitcoin community
crafting mechanism. As a result, the traded
until the end of 2010. Then he vanished
value of Bitcoin rises, and the electricity
completely,
consumption increases dramatically.
Bitcoin-client
leaving
in
an
2009
unpleasant
aftertaste of uncertainty.
in
efficiency
and
increasing
According to Digiconomist, the Bitcoin
Another main risk usual for bubbles are the
network is going to require 32.36 TWh in
investors themselves: The Bitcoin price
2017. That is more than 159 countries in the
contains a massive amount of speculation,
world do consume per year. The raised
inflating the Bitcoin bubble day by day. Lots
wattage can be directly extrapolated into
of people who probably don’t even
increasing emissions. Motherboard for
Source: https://digiconomist.net/bitcoin-energy-consumption 07th Dec ‘17
example
leads
a
Bitcoin-
Description
Value
Bitcoin's current estimated annual electricity consumption* (TWh)
32.36
Annualized global mining revenues
$11,322,523,149
demand for a single Bitcoin
Annualized estimated global mining costs
$1,618,129,306
amounts up to eight to 13 tons
Country closest to Bitcoin in terms of electricity consumption
Serbia
Estimated electricity used over the previous day (KWh)
88,664,620
Implied Watts per GH/s
0.297
Total Network Hashrate in PH/s (1,000,000 GH/s)
12,551
Electricity consumed per transaction (KWh)
250.00
Number of U.S. households that could be powered by Bitcoin
2,996,536
Number of U.S. households powered for 1 day by the electricity consumed for a single transaction
8.45
two third of Chinese power is
Bitcoin's electricity consumption as a percentage of the world's electricity consumption
0.14%
gained in coal power stations.
(New) Annual carbon footprint (kt of CO2)
16,014
(New) Carbon footprint per transaction (kg of CO2)
123.73
manufactory in Mongolia that only derives electricity from coal power
stations.
The
power
of CO2 emissions. Hence, 24 to 40 tons of CO2 emissions per hour are produced for this purpose. A car would need approximately 200.000 km to create similar
amounts. The
majority of Bitcoin servers are located in China. Roundabout
However, this fact must not
necessarily prevail. Bitcoin is not yet
Additionally,
regulated
institution.
Bitcoins can easily be understood as
Analysts predict that regulatory changes for
careless tax reduction or even as intentional
Bitcoin trading and mining soon will be
tax evasion.
introduced by the Chinese government. For
challenges governments are eager to
example,
and
tackle. And once for instance the Chinese
from
government decides to do so, the Bitcoin
environmental issues this policy incentives
might drop significantly without anybody
would most likely be caused due to the
to being liable or covering the loss, in
immense lack of transparency when it
contrast to real currencies.
punishes
by
any
Russia
central
already
Bitcoin-usage.
forbids Apart
comes to customer/user identity and
wrong
way
of
handling
These circumstances are
money laundering.
Monopoly Miners
The shutdown of the German company
Mining gets more difficult by every day and
“Bitcoin24” shows the risk that dealing with Bitcoin brings along. Due to accusations of money laundering the trading and storage platform had to abort their business operations. Warrant arrest was issued,
demands increasing processing power. Back in the beginning one could easily compute several Bitcoins a day using a personal computer. Nowadays the same process would take decades for usual
Servers were confiscated, and many victims
devices.
never got their money back.
Bitcoin is limited to 21 million coins and
Criminal potential emanating from Bitcoins
difficulty to create new coins is increasing.
is indeed remarkable and e.g. also a possibility networks
for to
criminals transfer
or
terroristic
payment
flows.
Transactions are executed through the miner’s processing actions. Miners do so because they are rewarded with newly
created Coins and a small transaction fee.
If too many miners leave the market,
Due to the increasing difficulty computing
remaining
miners
new blocks gets more and more expensive
monopoly
position,
for miners. Moreover, a mechanism called
decentralized and free original idea of
“Block-Halving” bisects the amount of
Bitcoin. Another problem is the so-called
Coins miners get from each computed
“Mining-Centralization”. China has built up
block every 4 years.
enormous
But what happens as soon as all possible 21 million coins are mined? Since the amount of coins is limited by code, there can’t be
would
get
into
contradicting
mining-capacities,
a the
providing
roundabout 2/3 of all mining activity. This obviously does not fit the idea of an international currency network.
mined any further coins. When miners can’t
Furthermore, the so called “Great Firewall of
get any more coins, they face a huge loss of
China” troubles the whole Bitcoin system.
profitability which might have several
The heavy regulation of the Chinese web
consequences. Transaction fees must be
results in Chinese population suffering from
increased drastically, which would make
worsening internet performance - the huge
Bitcoin
users.
influence of Chinese Miners therefore
Or even worse: If too many miners leave the
impacts the whole system’s performance.
market it would be nearly impossible to
Another urgent matter is the so-called
compute all Bitcoin transactions, resulting
threat of a 51% attack. In case someone
in inefficiency. Already now the so-called
who wants to harm the Bitcoin network is
scaling debate describes the fact that the
able to provide more than 50% of all mining
Bitcoin network is overloaded with the
capacity, he basically is able to change the
increasing
transactions.
system in his favor. Imagine you want to
Confirming transactions and packing them
smuggle a toxic block into the blockchain –
into blocks takes an increasing amount of
How would you get around the safety
time. If transferring Bitcoins gets way more
regulations? Easy: the more mining capacity
expensive and takes way more time, people
you provide, the bigger the probability that
will probably abandon the ‘currency’.
you are yourself the one confirming the
less
attractive
amount
of
for
harmful block.
Benedikt Kiefer
Max Opoczynski
Johan ten Doornkaat
Pascal Jäger
New Economy Nasdaq 100 4500
This way one could stop or even redirect
4000
transactions, which would be the end of
3500
Bitcoin. This threat is not even highly
3000
hypothetical: Already now the 4 biggest
2500
Jan 00
Jun 99
Nov 98
account when considering an investment
Apr 98
Finally, one should take these things in
500
Sep 97
1000
Feb 97
successful mining activity!
Jul 96
1500
Dez 95
mining pools make out over 60% of all
Mai 95
2000
into Bitcoin. There are serious safety issues, a speculation- and QE-driven price with a difficult investor structure, high probability
SF House Prices in $'000
of governmental interventions because of crime
900
or
terrorism
funding,
money
laundering or even environmental pollution
800
and a developing monopoly position for
700
certain miners. Therefore, just keep the
600
Dutch’s words in mind: Avoid being the
500
fool.
400
Jan 05
Jan 04
Jan 03
Jan 02
Jan 01
Jan 00
Jan 99
Jan 98
Jan 97
Jan 96
300
Head of Research
And Pascal Jäger
Bitcoin in USD 18001 16001 14001 12001 10001 8001 6001 4001 2001 1 10.04.2013
By Johan ten Doornkaat
10.04.2017
P.S.: Speaking of “Bitcoin Bubble” During the 24 hours this article was completed Bitcoin increased by 32% from $12,500 to $16,500
With the help of Max Opoczynski Benedikt Kiefer
A Good Opportunity to Burn Your Money?
Blockchain
company
have
the company, blockchain companies have
discovered initial coin offerings (ICOs) as an
started to use ICOs. The typical way for a
opportunity to raise early capital. The
startup is to produce a white paper that
Crypto-tokens offered in these sales (in
describes
exchange
technical
for
“venture
startups
capital”)
are
their
business
approach.
The
model white
and paper
intended to be a kind of flexible security.
includes details about the functions that the
Some tokens are similar to currencies,
tokens issued during the ICO will perform
others are more like securities, and others
and the process of token creation. It is
have properties that are entirely new. Each
important that the number of tokens
company’s technological vision calls for a
created is limited and that these limits are
token with unique properties and uses.
clearly mentioned. The simplest way is “Pre-
Failing to do so can put an otherwise
Mining” a fixed number tokens and then
excellent project at risk. Since the token is
never issuing tokens again. The tokens are
the investor’s security, it becomes obvious,
then offered for sale in an auction, and the
that the tokens properties have to be
proceeds are used to fund the project. As
thought through and can’t be standardized.
mentioned before, tokens will have very
In this article we will not analyze the nature of the blockchain and Cryptocurrency system themselves, but analyze and briefly discuss,
whether
ICOs
bring
great
opportunities to make a big killing or just one more game of hazards into the investors world. To begin, lets discuss what initial coin offerings actually are. ICO describes the process of raising capital of Blockchain startups, planning to create and establish another
Cryptocurrency
based
on
blockchain or a token system. Instead of going to the expense of making an initial public offering (IPO) of stock or the trouble of convincing a venture capitalist to back
specific
and
depending
on
unique investors
characteristics, criteria,
the
startups affinity and creativity in general. Hereby one of the biggest problems is to estimate the value of different tokens, since they are not standardized or regulated in any way. Leading to one of the major problems when it comes up to ICOs: The Regulation. Initial coin offerings, comparable to orthodox funding, crowdfunding or venture capital, is completely
unregulated.
Thinking
this
further, we will notice, that the actual investors won’t get any real securities, except the tokens. Simplified: You will give your money into the ICO managers hand and might lose everything without any
security. This illustrates perfectly how
network externalities and this tends to
important the tokens are, not just for the
make for a winner-take-all environment.
potentially upcoming Cryptocurrency itself,
There will be winners and their impact is
but especially to convince investors to bring
likely to be huge.
capital. But if ICOs are evidently rated that risky, why is there such a booming “niche market”? Just giving a few numbers, about $250 million was raised through ICOs in 2016 which is a significant bit of the $1.4 billion
approximately
invested
in
blockchain startups in 2016 in total. Looking for an adequate answer, we can
ICOs are a kind of wild west of crowd funding at the moment. The fact that ICOs allow small startups to raise a few million dollars quickly and with few transactions costs is a probably a good thing but also brings the risk of a quick growing bubble. Investors should be on guard.
guardedly make a hypothesis, considering
If you are considering investing into ICOs,
the apparent Cryptocurrency hype and
even more detailed researches, finding
boom in general, and as second the actual
adequate
opportunity of landing a “lucky punch”,
knowledge about the world of Blockchains,
investing into a promising blockchain
Cryptocurrencies
startup
money.
needed. Deep research on the company’s
Nevertheless, one may conclude, that
business plan, business model and the
Cryptocurrencies are a game changing
managers
technology.
competence are key factors in terms of
without
losing
your
But still we are in a too early stage to figure out how to use and value it properly. Many startups are working in a variety of creative ways to bring applications to markets. Most of them will probably fail. Blockchain applications seem to exhibit significant
alternatives and
history,
and their
as
well
gapless impact
as
is
their
finding a potentially profitable investment. Remember,
the
blockchain
and
Cryptocurrency markets are some of the most volatile markets existing. Meaning, be mindful about investing money in such hyped and trend dependent markets.
By Jannis Markgraf With the help of Adrian Scheffler Justus Wackenhut Tijen Demircan
Adrian Scheffler
Jannis Markgraf
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Thank you very much … … for reading our special edition about Cryptocurrencies! We hope it was as exciting to read as it was for us to create it in the first place. Please keep in touch with us to receive the coming edition next year. If you have any concerns, questions, business inquiries or further food for thoughts feel most invited to contact us.
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