Democratization of Investments with Crypto-Assets and the Need for Independent Ratings

Crypto-assets take over real assets

Innovation triggers great excitement among investors. Excitement, however, is a bad investment advisor. As the dot-com boom has already shown us some twenty years ago, most of the firms that see the light of the day during such a period of excitement will fade away quickly once the party is over, and so will their finances. Yet some will make it, and some will even become the leading firms of the future. Just take the case of Amazon or Google, who were founded in the midst of the dot-com hype. Today, the companies are worth hundreds of billions of dollars, and they constitute two of the top three most admired companies, according to a recent survey conducted by Fortune.

Crypto Currencies and the Democratization of Financial Investments

The current boom is about platform businesses and blockchain-backed Initial Coin Offerings (ICOs). It takes no crystal ball to predict that most of the mushrooming ICOs are not built to last. Yet it would be a severe mistake to blindly discard the innovation behind coin or token offerings, as this innovation makes an extremely important and valuable contribution towards the democratization of financial investments. So there are good reasons to believe that some of the crypto companies that emerge today will be the Amazons or Googles of the future.

Until recently, it was difficult or impossible for the general public to participate early on in major innovations. That space was reserved for venture capitalists during the seed stages and private equity firms during the expansion stages. Coin offerings now drastically change this world order, simply because the underlying blockchain technology slams issuance, transaction, and coordination costs. Today, virtually anybody can participate in new ventures by buying a few dollar worth of coins and holding them in their digital wallet. This is indeed a great innovation!

The Need for Objective Information

However, this democratization of financial investments also poses significant risks. Small investors generally know much less about important issues such as the viab