Bear Markets, the Crypto Winter, and ICOs

Satoshi Nakamoto created Bitcoin to disrupt the global monetary system and the reliance on third parties, money-men, and central banks. Since its creation, an entire community consisting of millions worldwide have joined this vision. The surge in Bitcoin’s value and the raise of altcoins is evidence of this. While the crypto-bubble of 2017 suggests that some of this surge was simply people looking to get rich quick, the fact that cryptocurrency market is still standing at around $295B (at the time of writing) over half a year after the bubble burst is testament to the resolve of the community.

With such passion, it was inevitable that this community would create a new way of raising funds for start-ups: ICOs. While the first ICO emerged in 2013, we saw an explosion in the sheer number of new offerings alongside the massive climbs in Bitcoin’s price in 2017. In the first quarter of 2017, a grand total of 19 ICOs had raised roughly $21M, by the fourth quarter this had exploded to over 500 ICOs and nearly $3B in funds raised. This correlates strongly with the explosion in Bitcoin’s price over the same period. However now that the price of Bitcoin and other cryptocurrencies has dropped, it is only natural to assume that ICOs are similarly struggling.

This assumption is wrong.

The Current State of ICOs

ICOs are weathering the ‘crypto winter’ remarkably well. More money has already raised in 2018 already than was raised in the whole of 2017. Additionally, analysis has found that ICO returns have not been affected by the current crypto bear market. The fact that ICOs are still performing so well despite the significantly lower prices for Bitcoin and Ethereum is a clear sign that they aren’t going anywhere for the time being.

This does raise an interesting question though: Why are ICOs cruising along so well if the broader crypto market is struggling to recover from the falls at the beginning of the year? Put another way, why is it that people are still placing their money into ICOs when they’re so hesitate to buy cryptocurrencies?

The answer seems to lie in the types of people now investing into ICOs.

Increasingly we’re seeing a move away from the crypto crowd putting money into ICOs to more seasoned entrepreneurs and venture capital firms as they realize the future potential of blockchain applications more. By the end of February this year venture fundraising had already totaled more than 40% of 2017’s total. More funds are also gearing up to invest in ICOs in the near future. This is being reflected in the way blockchain startups are running their ICOs. Instead of being one-time events where anyone can participate in, many startups are now staggering their ICOs across multiple rounds, many of which are only open to accredited investors.

This change is being driven by two main factors: Regulation and the interests of founders. As more governments begin regulating ICOs and clearing up legal ambiguities, the Wild West of crypto becomes more tame and palatable for investment firms. This is resulting in more money flowing from venture capitalists. At the same time, this is a direction that many founders are welcoming. This is because it ultimately improves the quality of investors who are wanting the project to be successful in the long term. Pump and dump schemes and people who invest simply to make a quick return only result in the token value to tank, which is clearly not in the interests of any legitimate founders.

Given the sheer number of fraudulent ICOs and scams in the industry, this is a welcome development. Along with the increasing regulation of ICOs, this should see legitimate, genuine ICOs becoming the norm rather than the exception. This is a necessary stage in the evolution of ICOs if we want them to stick around. The increasing confidence of institutional investors also means that there’ll be more funding available for blockchain ventures which will fuel the growth of the decentralized web.

We however do not want to see institutional investors locking out regular people from participating in ICOs. This would be counter to the spirit with which this funding method was derived, placing the success of future blockchain solutions and applications in the hands of a relatively small number of venture capital firms. For startups looking to decentralize the web away from the hands of the few current gatekeepers, it only make sense to have their funding be aligned with this broader goal.

We are already seeing a trend toward less open ICOs, however.

More and more quality projects are no longer offering public sales, opting instead to focus exclusively on raising capital privately from accredited investors. This is largely because legitimate founders want to comply with regulation and keep everything aboveboard. While guidelines for running ICOs are being established and becoming clearer, doing so is still a legal minefield that’s evolving so fast that keeping up with it is a major source of frustration for all involved. Therefore it’s no wonder that they’re turning to knowledgeable firms to help them raise funds. Doing so is the safest way to ensure the long term interests of their projects are protected.

The question then is how we can remain committed to the ethos of crypto and remain on the right side of the law. Bureaucracy is painstakingly slow, so waiting for governments to create a clear, easy to navigate legal framework for running ICOs is going to take a long time. Fortunately there are a few solutions in the meantime.

Airdrops

Another way to distribute tokens is through airdrops. Dfinity’s recent airdrop is a good example of this. The company didn’t offer a public sale, presumably out of the implications of having to comply with securities laws. Instead they offered one of the largest airdrops we’ve seen. This enabled them to reward members of their community for the support they gave the project over the years since it was first announced.

Even this was not a perfect solution though, with US citizens being barred from participating in the airdrop. Meaning that early supporters of Dfinity in the United States were blocked and those who believe in the future potential of Dfinity’s blockchain based cloud computing are unable to contribute funds. Not only does this suck for them, but only having an airdrop in place of a public sale to begin with reduces the capital pool available to Dfinity to build and refine their product.

Syndicates

Centralized crypto syndicates currently offer another way for individuals to get in on the action, but also come with their own problems. Minimum investment thresholds present an initial entry barrier for many and those who possess enough money to join a syndicate are often faced with exorbitant fees that can offer be hard to understand. When commission fees are considered, centralized crypto syndicates often present a subpar investment strategy. Thankfully, there are people working on changing this.

Berlin based blockchain startup Coinmirror are working to bring transparency to the world of crypto syndicates and lower the barrier to entry. Their solution, currently in a public beta, enables anyone regardless of the amount of capital they have available, invest by having their investment mirror the actions of syndicate leaders. They are achieving this through decentralization and utilizing smart contracts on the Ethereum network. By also providing the education on how to invest in ICOs, Coinmirror is presenting a solution that aligns well with the spirit of the crypto community.

Ultimately we want to see a distributed, well informed investor base funding the future of the decentralized web. What we do not want to see is a return to having an investor base filled with people with little knowledge about what they’re putting their money into. This is not good for anyone involved. We also do not want to overcompensate for this by overly restricting who can and cannot participate in ICOs to the point where educated and intelligent individuals are unable to support the vision of blockchain startups simply because they don’t meet a minimum investment threshold. As ICOs mature we hope that it can achieve this balance.

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We’re the team behind existing email apps Sendicate and Smartrmail, and last year helped over 7,000 businesses send over 1 billion emails. We’re using SNDY tokens to improve engagement with marketing emails and reward subscribers for their valuable attention. If you’re interested in the project, join our telegram group: https://t.me/sendytoken or check out our site: https://sendy.network/