What Happened to ICOs?

Initial Coin Offerings (ICOs) were all the rage in 2017. The fundraising method rocketed to prominence during the cryptocurrency boom as companies embraced the ability to raise capital without relinquishing control over operations and decision-making. The no-VC/no publicly traded approach paid immediate dividends, with crypto news source Coindesk estimating $5 billion raised via ICO in 2017, often with little more than a buzzword-heavy whitepaper and spiffy website.

Those days, however, seem to be firmly in the past. With increased press coverage came increased scrutiny – including from federal officials, who expressed concerned that the lax regulatory climate around virtual currencies enabled companies to engage in less-than-honest behavior, like raising money for a company that does not exist.

Their concerns were founded. Fraudulent ICOs were not uncommon, leaving research-averse investors (who were maybe a little too high on the idea of instant riches) fleeced – and angry. A degree of caution seems to have set in, with CoinSpeaker’s recent ICO analysis detailing the most recent declines in ICO value: a drop from $1.747 billion raised in May to $617 million as of August 19.

While fraud may have been a factor, the overall downturn in crypto markets from boom time has played a more significant role. CoinMarketCap calculates that the $800 billion market of January 2018 is now down to $200 billion – a market correction of serious proportions. Coupled with a quick failure rate for companies who offer an ICO (a study from Boston College found that 44 percent of 2,390 companies managed to still be in business after their investment round) and regulatory clampdowns and the space is much less of a Wild West environment than before.

The environment around ICOs is changing, but they aren’t dead yet. The climate in 2017 and early 2018 was ultimately unsustainable – market and behavioral corrections are natural. Caution may reign with investors, but Crunchbase detailed numerous bright spots: Hedera Hashgraph, who are “developing distributed ledger technology based on cryptographic hashgraphs, which some say are faster and have higher throughput than blockchains” raised a $100 million ICO in August after an $18 million venture capital round in March; gaming companies like CryptoKitties are blazing a new, exciting trail using “non fungible tokens” built on blockchain to “enable the creation of unique assets that can be collected and traded.”

For now, a mix of ICOs and venture capital money appears set to dominate the funding game. But if the past year has taught crypto enthusiasts anything, it’s that markets and moods can shift rapidly – traditional VC rounds may be in vogue today, but solidified markets and regulations could mean a boon for ICOs tomorrow.
 

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Contributor

Allana|Expert

Financial analyst and market blogger with expertise in equity research, fundamental analysis, and macroeconomic trends. I regularly publish coverage on individual stocks, ETFs, and sector developments — combining rigorous financial analysis with clear, engaging writing for a broad investment audience.

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