Cryptocurrency investments in Russian start-ups grew tenfold in 2017 as entrepreneurs launched more than 100 crypto projects. Yet employees remain cautious: only 8% would like to receive part of their salary in digital currencies. Still, Russians are optimistic about Bitcoin, and most expect its price to rise again within a month.
Growth dynamics: $20 to $200 million
In Russia, new companies often struggle to secure funding through traditional channels, since banks are reluctant to finance high-risk ventures and frequently require substantial collateral for loans. Venture capitalists can also impose unfavorable terms on early-stage firms. Those challenges, together with the growing popularity of cryptocurrencies, have pushed many Russian start-ups toward initial coin offerings (ICOs).
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More than 100 crypto projects were launched last year, compared with just 20 in 2016, according to Oleg Ivanov, founder of CryptoBazar. Experts attribute much of that growth to a lack of strict regulation, which makes it easier to raise funds domestically but leaves investors with limited protection. Cryptocurrency investments in Russian start-ups increased tenfold in 2017 to roughly $200 million, up from about $20 million in 2016.
Regulation to limit ICO-related risks
Initial investments via ICOs can deliver relatively low returns in some cases, which is why Russian regulators are not poised to replace traditional public offerings. Market capitalization for many digital assets remains modest, even as Bitcoin’s prominence has attracted a wave of new participants.
The absence of a clear legal framework to regulate ICOs has generally put entrepreneurs in a stronger position than investors. Draft regulations have already been proposed; if implemented, Russia would limit the total capital that can be raised through a single ICO and cap individual investments to reduce risk and protect retail participants.