2018 ICO Trends: So Far, So Good
ICOs, or Initial Coin Offerings, are the exciting place where cryptocurrency and crowdfunding meets. Startups create digital tokens and sell them to the public to fund a specific future product or project. The tokens don’t represent a share of equity, which makes it different than a traditional startup investment. Instead, investors hold on to the tokens in the hopes that the project hits it big and becomes the next hot thing, driving up the value of their holdings. Their earnings then come from selling off the tokens at a higher price.
ICOs raised $11.8 billion in the first 5 months of 2018, compared to $5.5 billion raised in all of 2017, according to a Wall Street Journal analysis of nearly 900 offerings listed on ICOBench.com. To break it down further, close to 500 coin offerings have raised an average of $24 million each in the first five months of 2018. Compare that to the last five months of 2017, where 300 startups raised an average of $14 million each. For better or for worse, ICOs are a powerful new tool that puts both investing and startup capital generation into the hands of the people (1).
Increased scrutiny by regulators both in the US and abroad have been the result of some pretty massive frauds and scams. ICOs continue to move ahead but are increasingly leaving out US investors or moving operations overseas to avoid SEC oversight. Even so, many companies are playing it safe and requiring investors to verify their identity through KYC/AML. The Know Your Customer/Anti-Money Laundering process aims keeping bad actors (no, not Nicholas Cage and Kevin Costner) from using ICOs and other investment vehicles for criminal activity like washing stolen funds, paying for bribes or funding terrorism. Or worse, another Keanu Reeves movie. Enough is enough, right?
Another increasing trend is the elimination of public offerings altogether. Many startups are now only offering participation to private groups of accredited investors. This way, they can still raise hefty sums without the risk, even while major cryptocurrencies like Bitcoin and Ethereum values continue to fall. This trend defeats the purpose of the original intent of crypto and blockchain technology: decentralization and democratization. All of this is the natural normalization process as the crypto and ICO markets find their long-term course following an explosive beginning.
So, what should you watch for as 2018 continues to develop? Within the US, a handful of states have laws in place or are currently working on bills accepting or promoting the use of Bitcoin, smart contracts, and blockchain technology (2). Many countries still view the cryptocurrency market as too small and undeveloped to require much in the way of regulation and have no immediate plans to do so. Most require KYC/AML, if anything, and focus on investor education to help individuals avoid scams. Some go as far as stating that cryptocurrency is not a legal tender in their country, but few ban its use for payment outright.
We’ll continue to watch these trends closely. One thing’s for sure — they’ll be more ICO news to come in 2018. Stay tuned!
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(1) Vigna, P., Shifflett, S., & Ostroff, C. (2018, July 1). What is Crypto Downturn? ICO Fundraising Surges in 2019. Retrieved July 12, 2018, from https://www.wsj.com/articles/what-crypto-downturn-ico-fundraising-surges-in-2018-1530466008
(2) Oelberg, E. (2018, March 10). Global Cryptocurrency Regulations by Country • CryptoToday. Retrieved July 12, 2018, from https://www.cryptotoday.io/global-cryptocurrency-regulations-by-country/
