For the most part of the last quarter of 2018, every clickbait news title and an overwhelming majority of crypto experts were predicting a major downfall of the ICO market in 2019, praising `new` fundraising methods through STOs & IEOs. While it is obvious that every new thing has its passing hype, the ICO market looks a bit less gruesome than what was expected of it.
As half of 2019 has already gone, let’s look at what the numbers have to say about ICOs.
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According to icodata.io the funds raised in the first six months of 2019 amount for about $346 million with March and May being the peak months and June, predictably, the lowest in terms of money raised. In the first six months of 2018, the funds raised by ICOs amounted over $6 billion. This means the first half of 2019 only managed to get to 5% out of the funds raised during the same period in 2018. Is this a major downfall? Yes! Does it mean ICOs are dead? Absolutely not!
ICOs in 2018
Firstly, the beginning of 2018 was the tipping point for ICOs. The fundraising method was quite new and everybody got in the game early out of the fear of missing out. Nobody knew if returns would be real, but everybody wanted to be part of the promising revolution. The possibility of investing small amounts into projects that promised extremely profitable returns was a novelty, and a lot of middle-class individuals saw in this a way to make some extra money. And they were right to believe so. Bitcoin had already made billionaires and ICO was the next big thing. Projects were also promising the moon and beyond, crypto experts had no experience with ICOs and so they all became part of the game, encouraging millions to venture into what promised to be the bright future of crypto.
By March 2018, analysts had released the very concerning news saying that more than 80% of the ICOs were nothing more than old-fashioned scams wrapped in the blockchain mystery. Truth to be told, in my opinion, the projects that started with an ICO in late 2017 and 2018 were not necessarily all scams. Or at least not from the very beginning.
Were all ICOs scams?
What crypto enthusiastic young entrepreneurs missed was that their ICOs had to be based on strong business plans, just like any other traditional start-up. Maybe even more! Why? Because the economics behind a crypto project must be strong in order to bring returns. Percentages concerning the token split, how much tokens should one give as freebies in airdrops and bounties, how much should they keep, and finally, how much should they sell are not just numbers that come from the top of your head. If they’re not well thought, the success of the ICOs will not see the light of the day. When they saw their business plan crushing, a lot of project leaders decided to get out while they still could, keeping the money and the appearances.
Then, there were the ones who did not even hope to raise millions on a nice website and colorful whitepaper. They got millions and suddenly, the world was a much nicer place with Lambos in their garage. So, they thought going through with the business is too complicated and they don’t need to do it. They already had the money.
The Downfall of ICOs in 2019
The downfall of the ICO industry in 2019 can also be explained through the development of new fundraising methods for crypto projects. We’re talking about STOs and IEOs, whose attributes we explained in a previous article. Everybody predicted STOs to be the thing in 2019. Here we are in June 2019 with no running STO in Europe. STOs are nothing like ICOs. They can’t help an 18-year-old guy with an idea to make it, but they address either large corporations or entrepreneurs with big money behind. Regulations are not straight-forward, the securities law is complicated, and no one seems to want to get into that. IEOs are interesting but they do not solve the problems that have plagued ICOs. Some platforms were the subject of hacking attacks, security issues, fraud and very important, fake trading volumes.
The ICO market is definitely much lower than it was last year, and investors are not so eager to dive into them, because they now fear being scammed. Crypto review-based listing platforms do not offer valuable input on what ICOs are to be trusted or not. Take, IcoBench, for example — one of the most popular ICO listing platforms. In their 2019 Q1 report they show how ICOs with an average rating of 3.6 or more have managed to raise funds, while the ICOs with a rating under 3.1 did not. This is not very impressive, and it shows how their ratings don’t actually say much about the value of an ICO.
However, ICOs are here to stay, as the data shows. With more modest numbers and a clearer vision on how to make fundraising more transparent, ICOs have a real long-term chance to succeed. One should keep in mind that a lack of incentives is what can kill a start-up. Giving tons of money from the very beginning makes people wonder why they should work since they are already well off. Fortunately, the ICO industry has the potential to regulate itself and transition to a more secure, less risky and more transparent environment. And this is exactly what we are trying to do by using smart contracts and an escrow-like service that allows investors to decide when to join and withdraw from an ICO.