Big Four firms increasingly tapped for Initial Coin Offerings

12 September 2017 Consultancy.uk

After a fork in Bitcoin recently led to the creation of Bitcoin Cash, a separate cryptocurrency, clients of the world's four largest professional services firms are expanding their interest in the blockchain sector. While the sector is currently in a state of flux, the recent explosion of experimentation is seen as too attractive a risk not to take as major firms bid to stay ahead of the game amid fears of increased competition and digital disruption.

Blockchain technologies have been threatening to break into the financial mainstream for a while, along with a number of other functions which the technology can adapt to. According to representatives from Deloitte, EY, KPMG and PwC, existing and prospective clients are beginning to ask questions about initial coin offerings (ICOs), the process by which public blockchain technologies can be leveraged to create custom cryptocurrencies that are subsequently sold to fund projects. The most famous of these is Bitcoin, a digital currency in which encryption techniques are used to regulate the generation of units of currency, and verify the transfer of funds, operating independently of a central bank.

Now, resulting from a “fork” in Bitcoin’s blockchain, Bitcoin Cash sees businesses presented with a new opportunity to enter the market. Instead of creating a totally new cryptocurrency (and blockchain) starting at block 0, a fork just creates a duplicate version that shares the same history. So all past transactions on Bitcoin Cash’s new blockchain are identical to Bitcoin core’s original, with future transactions and balances being totally independent from each other. For practical matters, all this really means is that everyone who owned Bitcoin before the fork now has an identical amount of bitcoin cash that is recorded in Bitcoin Cash’s fork. However, for new investors, it presents a separate chain via which future investment could reap rewards.

Big Four firms increasingly tapped for Initial Coin Offerings

According to Eamonn Maguire, who leads KPMG's Digital Ledger Services division, the firm has received a number of requests to work with entrepreneurs seeking to become the next Tezos or EOS, both projects that have raised hundreds of millions by selling cryptographic tokens. With the novel funding method continuing to make headlines, Maguire stated that due to cryptographic tokens’ potential to draw new investment across industries, “We've seen a definite uptick in the inquiries we are receiving. In the past month alone, we've probably gotten 10 inquires – for example from institutions in France, Switzerland, Russia and Austria."

Big Four rivals Deloitte and EY likewise indicated that they were receiving increasing interest on the topic, with the firms confirming to the press that new conversations with "wealth and asset managers" had taken place, on how they can begin managing cryptocurrencies and ICO tokens. However, others are pointing to the lack of pertinent regulation as a roadblock that is preventing newcomers from capitalising on ICOs.

The other constituent member of the Big Four, PwC’s representatives are taking a much more cautious stance. According to Ajit Tripathi, a Director of FinTech and digital banking at ‎PwC, "While the potential of ICOs in terms of transforming venture capital is indeed exciting for many of our clients around the world, the lack of regulatory clarity, particularly in the US, remains a concern.”

For this reason, such projects are "still relatively rare", owing to an uncertain regulatory environment. Meanwhile, the sales environment remains a harsh one for platforms like Bitcoin and Bitcoin Cash. While some exchanges have added the new currencies for trading, liquidity remains drastically low, leading to speculation that the price is being artificially inflated. Because most exchanges aren’t accepting deposits yet, the only Bitcoin Cash available to trade is currency that was credited by exchanges after the fork.

This, meanwhile, suggests that there is a large amount of Bitcoin cash waiting to be quickly sold off as soon as people can transfer it, as there is not much incentive to keep the coins, especially when people think they are overvalued and want to quickly cash out. This has already led to a price fall, down from a high of $680 to around $350 on Bitfinex, one exchange that is offering a market for the new currency. This suggests that while there is opportunity within the segment, firms and their clients would do well to remain cautious.

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