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Report: ICO Market Plummeted, Down 97 Percent Since Last Year

ICO IEO Market 2019

The once robust Initial Coin Offering (ICO) market, which generated billions for new crypto projects, has taken a nosedive in the last twelve months.

According to a report published by the cryptocurrency exchange BitMex on May 13, the ICO market is down 97 percent on a year-on-year basis, generating only $40 million in new capital through the first quarter of 2019. BitMex findings are couched in a broader discussion over the growing phenomenon of “Initial Exchange Offerings (IEOs),” which the company reports to be functionally similar to ICOs, albeit with a name-change to distance itself from the now-defunct coin offering space.

In addition to a stagnating marketplace for new coin offerings, BitMex reports that the majority of ICOs launched during 2018 have performed poorly. While 2018 constituted a “crypto winter” for coin prices, the majority of ICOs launched last year are down around 80% from their initial offering price, representing a substantial loss for investors who got in on the original sale. As well as poor price performance, a large swathe of ICOs launched in 2018 have yet to make it on cryptocurrency exchanges for trading, which could amount to a total loss for investors left holding bags of now worthless tokens.

BitMex reports that the shift from ICO to IEO has managed to generate some renewed interest in coin offerings, most likely by masking the negative connotations and poor price performance associated with the former. Compared to ICOs, which were almost completely in the red across the board, some IEO coins have managed to garner positive returns on investment, including BitTorrent Token (BTT).

However, similar to the trading experience of ICOs, the typical ROI on IEOs plummets once the coins make it on to an exchange. While ICO investors may be looking to offload their coins at a price higher than the initial offering, the broader market for trades is less enthusiastic about the sudden dumping of coins. The end result has been a crash in price for newly issued coins upon reaching cryptocurrency exchanges, with most of the ROI profit being made within the initial 24 hours of trading.

BitMex’s report also claims that the majority of token supply in Initial Exchange Offerings are being withheld from investors, with an average of only 4.4 percent being made available in public sales. According to their data, the total market capitalization for IEOs could much higher, assuming these development teams are able to find a buyer,

“there are opportunities for project teams to make considerable profits from selling coins they granted to themselves. The 2019 IEOs were priced at a level which implies a total market capitalisation of US$907.7m, based on the disclosed total token supply.”

Even with the subtle name change, initial coin offerings have continued to be maligned by some sections of the industry, particularly in relation to their high volatility, propensity for scams, and general lack of regulation. Considering where the ICO marketplace was just one year ago, the last twelve months have all but evaporated investor interest.

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ICOs Could be Forced to Pay Back Millions Following SEC Ruling

Cryptocurrency, Initial Coin Offerings (ICOs)–While the crypto markets hit a relative low for the year, with Bitcoin now trading at $3300, the news continues to worsen for the controversial field of initial coin offerings.

ICOs, the innovative fundraising measure that has capitalized on the speed of growth in the space of cryptocurrency, have come under fire by the United States Securities and Exchange Commission over whether they should constitute securities. In November, the Commission announced a landmark ruling which could have broad implications for the landscape of the industry, when it determined that two startups companies were in violation of securities laws. Two projects in question, including Paragon, had managed to raise millions by issuing tokens to non-accredited investors, a breach in which the SEC found grounds for legal action.

Paragon has since announced that it would be forced to pay back investors, leading to a sense of uneasiness among other coin projects which could be facing a similar fate. Crypto hedge funds, which made substantial returns on investment by buying into initial coin offering projects during the bull run of 2017, could be looking at a possible scenario where invested projects are forced to pay back investors en masse, leading to a conundrum for the funds which backed their development.

As reported by Bloomberg, the situation surrounding ICOs is further complicated by the fact that many cryptocurrency projects failed to register with the SEC in addition to selling their tokens to individual investors who lacked the proper requirements for accreditation. While some have hailed the ICO, token-issuing model as one of the more innovative processes to emerge from the development cryptocurrency, others have seen a budding industry ripe with corruption. ICOs allow startup companies to fund and issue projects to investors at a rapid pace compared to the traditional route, including the ability to sell directly to Main Street investors rather than going through venture capitalists.

However, with the SEC ruling potentially being applied to a broader spectrum of currencies than the original two announced in November, hedge funds which supported ICO projects throughout 2017 and 2018 could be left holding the bill in the event of investor funds being returned. Pantera Capital Management, a fund heavily invested in cryptocurrency, is one company in particular that is reporting a shaky outlook following the SEC ruling.

In a newsletter released on December 13, Pantera’s co-chief investment officers Dan Morehead and Joey Krug explained that the SEC had broad implications for both their fund and the ICO marketplace, with one possible outcome being a stifling of innovation,

“While we believe the vast majority of the projects in our portfolio should not be affected, approximately 25 percent of our fund’s capital is invested in projects with liquid tokens that sold to U.S. investors without using regulation D or regulation S. If any of these projects are deemed to be securities, the SEC’s position could adversely affect them. Of these projects, about a third (approximately 10 percent of the portfolio) are live and functional and, while they could technically continue without further development, ending development would hinder their progress.”

While most regulatory bodies have been careful to tread lightly around emerging industries, with cryptocurrency being a possible source of innovation for the broader financial and tech landscape, ICOs have continued to be a source of contention for the SEC.

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ICO Volume in 2018 Already Double that of Previous Year

Cryptocurrency–According to PricewaterhouseCoopers (PwC), a multinational consulting firm based out of London, and the Swiss Crytpo Valley Association, the number of Initial Coin Offerings registered  in 2018 have already doubled that of the total for all of last year. Despite the plunging price of cryptocurrency, down nearly 70% in market capitalization from the beginning of the year, ICOs have continued to thrive in the space of crypto. While many of the major projects on the market today had their beginnings in an ICO, the practice has largely begun to become regarded by investors as a negative component of the industry. Regardless, the widespread method for funding cryptocurrency projects has managed to find even greater traction in 2018. According to the report:

“In total, 537 ICOs with a total volume of more than $13.7 billion have been registered since the beginning of the year. In comparison, in 2017 there were a total of 552 ICOs with a volume of just over $7.0 billion. Also, the average size of an ICO has almost doubled from $12.8 million to over $25.5 million since last year.”

ICOs are the current source of innovation and provide funding for new projects related to cryptocurrency. But for every one project that offers true potential, innovation and an outline for real world use, there are ninety-nine or more ICOs that amount to nothing more than a pump scheme. When Warren Buffett compares cryptocurrency to gambling, and continually labels the space as a bubble, he is largely looking at a landscape littered with the malpractice of negligent ICOs.

It is worth pointing out that cryptocurrency needs to have an avenue for new project creation and innovative development. The novelty spawned from ICOs is not the problem–in fact it drives the future of cryptocurrency and the steady progress of the industry. The real problem is the narrative and culture surrounding the ICO model. For the most part, ICO’s operate as empty pump schemes, with the entire focus on turning a quick profit. The end result is exploitation, money flowing into an essential ponzi scheme, and a myopic focus on development with the only real milestone being the one that allows a company to start fundraising. ICOs are beneficial to the industry when they can inspire novel ideas and allow for talented, intelligent developers a conduit into the space of cryptocurrency.

The real problem becomes creating a healthy balance between the two. Given the decentralized ethos of cryptocurrency, a feature necessary to both the industry and community, ICOs offer a free market approach that is available for anyone to contribute. Although this opens the door to charlatans and all but blatant criminals, it also allows for anyone to begin developing cryptocurrency without the hassle of gatekeepers.

While the investment base of cryptocurrency would like to see a level of responsibility imposed upon the process of ICOs, particularly one that shifts the incentive away from short-term profit and immediate cashouts to one that rewards the prospering of technology and currency adoption, it also requires a level of centralization and gatekeeping that could stymie innovation during a period when it is most vital to the growth of cryptocurrency. There is no way to create a regulatory or vetting body for ICOs that does not introduce the possibility of foul play in the form of third parties with ulterior motives. Current investors do not want to share market cap with projects that could kill their cash-cow currencies, and established developers have little incentive to promote their competition.

Promoting education, in addition to self-policing community efforts, might be the best option in handling the ICO epidemic. True decentralized communities allow for the market to dictate the growth of the industry, with individuals ultimately held responsible for their financial decisions–even if that means buying into a scam ICO. Cryptocurrency, at this stage in development, cannot afford to impose strict guidelines that stymie growth and the type of innovation that could lead to the next big breakthrough. While the ICO model might be unpalatable to the average investor, it is beginning to look more like a necessary evil to ensure the current trend in growth continues.

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