Although the government shutdown in the US is officially over, the current state of affairs looks more like a shaky truce than the end of the hostilities. The Congressional Budget Office (CBO) estimates that the temporary halt in government operations will cost American economy at least $3 billion of the projected 2019 GDP. S&P Global Ratings puts that number twice as high – at $6 billion.
To compare: the construction of the wall on the border with Mexico, which was the bone of contention that caused the shutdown, would cost $5.7 billion. Whether the deadlock was worth it is a question for economists and politicians. Meanwhile, we will take a look at how the situation affected the tokenized securities market.
The non-payment or suspended payment to federal contractors and employees was not the only effect of the shutdown. It also greatly impacted the US and world economy, including corporate transactions, mergers and acquisitions, and Initial Public Offering (IPOs) markets.
Because the US Securities and Exchange Commission (SEC) was effectively shuttered, projects that were getting close to launching their IPOs were forced to postpone or scrap their plans altogether. At least three have done so in January: two biotech companies Gossamer Bio Inc. and Alector Inc., and Alright Solutions, a subsidiary of a large investment fund Blackstone Group. And all of this is happening at the time when such mega giants as Uber, Lyft and Pinterest are gearing up for their IPOs.
Considering that Donald Trump and democrats in congress only agreed to reopen the government temporarily, until February 15, and that the harsh disagreements concerning the budget (which go far deeper than the mere issue of the wall with Mexico!) remain unresolved, it appears entirely possible that the second part of February will see a repeat of the first shutdown. This will likely force many companies to face a big question – if IPOs are unavailable, what should they try next?
“There is a tiny loophole: under the Securities Act adopted in 1933, a registration statement filed with the SEC can become automatically effective without the SEC’s approval 20 calendar days after the filing. But this is a rather risky proposition: if the SEC, once it gets around to it, starts asking questions, this may have rather unpleasant consequences for both the applicant company and its investors,” – says PhD in Economics Dima Zaitsev, Head of International PR and Business Analytics at ICOBox.
He further adds:
“But there is another solution. Major companies preparing to run an IPO can shift their attention to crypto markets outside of the US. The reasons for this decision would be very simple: the new development opportunities and, even more importantly, the shortened time to launch projects, which is always of utmost importance.
Since November 2018, we’ve been watching the growing global stock market instability and volatility due to the fact that many companies had to postpone their IPOs. And then the 35-day shutdown happened. What lays ahead is completely unknown. Can you imagine the long lines the projects would have to face to get registered with the SEC once all the tribulations are over? At best, the IPO market will be getting back to normal in March – and even then only if there is no secondary shutdown!”
There is another important aspect that has nothing to do with the SEC and the shutdown. The time it takes a fintech or IT company to prepare for an IPO has been steadily growing with every passing year. In 1999 it took on average 4 years, but now it can drag on for as long as 11 years! Dima Zaitsev believes that this will also push companies to look for faster, but no less reliable ways to attract funding. And this is where crypto market can be helpful again with its new and improved solutions such as Security Token Offerings (STOs).
“There’s a huge number of major private projects all over the world, which have great development potential,” continues Zaitsev adding:
“Sooner or later each of them may face a choice: do they wait a few years until they saved up enough money to invest in a new product development or expansion, or do they force the process and try to pursue all their plans at once? Clearly, the second scenario requires access to external financial resources.
In the past, ventures had only three choices to obtain funding: conduct an IPO (unavailable due to the shutdown, and so incredibly expensive as to be beyond the means of small and medium-sized businesses), obtain a bank loan (sky-high interest for relatively small amounts of funding), or conduct a private placement (doable, but very difficult in terms of working with investors). But now instead of these complex and costly models they can use one perfectly legal solution: an STO, a Security Token Offering”.
ICOBox experts cannot exclude that in the current situation even such giants as Facebook, Apple, Amazon, Netflix and Google’s parent company Alphabet may venture into the crypto space. Naturally, one can wait until the stock market, feverish as a result (at least partly) of the US-China trade war, calms down, and the federal government operations are back to running as before the shutdown. But the vital questions remain: how long will it take? Are the market players patient enough? And what is the ultimate point of waiting?
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You can alsocheck the latest Security Token Offerings (STOs) in Coinspeaker’s STO Calendar.