“Capital goes where it is most dealt with.”
– The wisdom of Wall Street Fork
In this century, Europe’s only major success, full of massive high-tech success, is Spotify, whose shares are listed on the New York Stock Exchange.
I’ll mention this because New York is not in Europe.
Spotify was founded in Sweden, in Luxembourg, and keeps its account in Euro.
As of the 2018 IPO, over half of the workforce and half of its customers were in Europe.
However, Spotify was one of 87 non-US companies that chose to list stocks that year, primarily in the US.
The reason is easy to understand. In the market, it is less easy to sell stocks than in the US (no matter where the company comes from), but the market is not paying any more.
This is not a recent development.
The United States has been a magnet for international investment capital for at least 200 years. This is because it was always easy to start a company here and sell its stocks.
In 19th century Europe, for example, a state or royal license was required to incorporate a company.
In the US, you simply fill out a few documents and pay the processing fee.
The US had little restrictions on issuance of shares at the time, allowing entrepreneurs to sell most of the stocks in these newly formed companies directly to the public, even if there was regulatory oversight.
(Crypto-friendly readers may see where I am heading this.)
The New York Stock Exchange required companies to have profitable and already tradeable stocks, but just outside the exchange there was an aggressive, off-the-shelf market that could offer anyone what anyone was selling.
In contrast, in Europe, the provision of public shares was viewed with doubt and sometimes required the approval of the Minister.
Perhaps most importantly, the US developed a smaller culture of stockholdings much faster than anywhere else.
The Erie Railway was one of the first railways to sell stocks directly to retail investors in the early 1830s. Its (relative) success helped to develop the culture of public equity investment.
Retail enthusiasm for Ellie’s stock has influenced the wave of railroad IPOs. Many of them were funded by European investors with more capital than domestic investment opportunities.
Of course, Europe also built railways, but these were primarily funded through government concessions or bank syndicates.
As a result, the United States ended its century with a much larger railway network than Europe, despite its much fewer people.
The American enthusiasm for buying stocks has since been one of the country’s biggest competitive advantages.
Automotive, aerospace, electronics, the Internet, AI: all of these capital-intensive industries have drawn to the easiest place to raise capital.
But is there a place where it’s easier to raise capital than crypto exchanges?
On Saturday, Memecoin Launchpad Pump.fun sold $500 million tokens in just 12 minutes. (At a retail price of just $0.004 per token.)
Like the Erie Railway, and unlike modern IPOs, much of this capital was sourced from retail investors. Blockworks’ Jack Kubinek reports that the median pump order size is only $400, and that 20,000 accounts are the exchange to qualify.
While US investors were still excluded because of a robust regulatory regime, Pump.Fun ICO reminds us that the crypto market is theoretically open to anyone with internet connections day and night.
Pump.fun ICO alone, on Saturday, more farming than the NYSE grew on all Saturdays since at least 1952 (when trading was suspended on Saturday).
This could prove to be a competitive advantage for the emerging digital economy. If the crypto capital market becomes the easiest place to raise funds, companies go to raise it.
And, like non-US companies raising capital in the US, non-crypto companies may one day raise capital from Crypto.
There’s risk!
Crypto’s lack of regulations has attracted projects that were interested in avoiding surveillance rather than doing something truly innovative or productive.
(In my opinion, the ju-describer is still on Pump.Fun.)
That may have to change. In the US, stock investments did not truly become mainstream until the SEC formed.
There is no such confidence in the crypto market.
However, the capital markets in the 19th century were able to fund and build retail investors and productive industries (banks, railroads, canals).
