Cryptos and ICOs — The regulatory environment.
Cryptocurrencies, digital assets, tokens, ICOs — all terms that have burst out into the web and media in explosive fashion. Bitcoin, Ethereum, and other blockchain based platforms have seen massive increases this year, and it’s not only the tech gurus who have taken notice. Regulators have begun to take interest. With China going so far as to ban all new ICOsWherever there is money being made, be sure that regulators and governments want a piece of the pie.
Until recently ICOs, initial coin offerings, a form of crowdfunding used to raise capital to start a new company or project, have largely flown under the radar, but with ICOs surpassing early stage venture capital the jig is up. During 2017 there has been over 90 ICOs raising a combined $1.2billion compared to around $300m from early stage VC.
Companies and projects are turning to ICOs largely because of advantages ICOs can offer over IPO’s and traditional venture funding. Traditionally companies looking to raise capital through an IPO must register securities with the SEC. This is a long drawn out process that can take six month or more, require companies to restrict certain activities, and involve back and forth communication between the company and the SEC. This is intended to weed out bad actors and scammers. While it is designed to protect investors, it also places restrictions on a company’s ability to raise capital and makes it difficult for startups to participate.
Some major advantages ICOs offer include:
- Little or no regulatory oversight.
- The associated expense are low compared to registering with the SEC.
- Quick to market.
- Receiving funds quickly.
- Global offerings — ICOs are not restricted to any one country or exchange.
- No restrictions around who can participate.
- Low minimums — meaning participants can contribute just a few dollars.
When comparing the advantages of an ICO to an IPO it is easy to see why companies with the capabilities have taken the ICO route. Why take the IPO route when it often limits a company to one country or exchange, and limits the investors who have access, when you can launch an ICO with unlimited access to anyone who wishes to participate globally?
It’s unfortunate that governments and regulatory entities are cracking down on this new technology. It’s no surprise that we will continue to see regulatory oversight in this space. Let’s hope regulators around the globe will not follow in the footsteps of China. Regulators need to see the impact this technology will have on economic growth and development. The easier we make it for business to grow and develop the better off our future will be.