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Curbing the Menace of ICO Fraud in the Cryptocurrency Industry

Initial Coin Offerings (ICOs) are fast becoming anathema to the cryptocurrency industry. More than 81 percent of all ICOs are fraud. Most investors and enthusiast are unaware of these pump and dump schemes. Due to it unregulated nature, most of these ICOs successfully swindle individuals get away with it.

The Emergence of Cryptocurrency Research Centers

In recent times, specialized cryptocurrency research centers have been established. These centers were created to analyze cryptocurrency market conditions and information which analysts provide. Such analysts must have had experience working with large securities companies and private equity fund firms.

The primary objective of these centers is to help individuals better understand the dynamic cryptocurrency market from an investor’s view. ICOs have continued to be plagued by these frauds, and these special centers are in place to curb the disease amid a regulatory vacuum.

Notable Strides Made So Far

Chain Partners Inc., South Korea’s first blockchain company builder, announced on July 29 that it was hiring employees for its research center. Cryptocurrency analysts who have five-year work experience in the investment banking industry stand a better a chance being hired by the company.  The Chain Partners Research Center is headed by Han Dae-hoon, the former analyst at SK Securities Co. and Shinhan Investment Corp.

The center is taking important steps, as it already presented a cryptocurrency index for the first time in Korea. Apart from this, a daily report analyzing the cryptocurrency market home and abroad is published. Another important step the Korean research center is trying to take is developing an index like the KOSPI 200. This can show the price trend and transaction data of major cryptocurrencies, like Bitcoin and Ethereum.

China Partners is not the only center willing to have an index. Bloomberg, together with US fund industry legend, Michael Novogratz, created Bloomberg Galaxy Crypto Index (BGCI). The BGCI also bases its calculations based on cryptocurrencies with the most market capitalizations and transactions, including Bitcoin, Ethereum, and Ripple.

Regularizing the Cryptocurrency Research Center Scene

Another company which recently launched its own research center, is Coinone, South Korea’s third-largest cryptocurrency exchange. The primary goal of the center is to present a premium standard for cryptocurrency analysis. Like Chain Partners Research Center, it also releases a report on cryptocurrency analysis and weekly market conditions.

Streami Inc. is not left out, as it recently received an ISO/IEC270001 information security certificated by the International Organization for Standardization. The company which runs cryptocurrency exchange, Gopax, is gearing towards providing Cryptopic that contains essential information on crypto investment.

Binance, one of the largest digital currency exchanges by market capitalization, is set to launch an application app called Binance Info. The company is test running the app by recruiting pre-users before the official release. According to a Binance official, Binance Info would provide information on about 1,200 coins and industry news.

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Study Concludes 80 Percent of ICOs in 2017 Were “Scams”

Initial Coin Offerings (ICOs)–The bad news for ICOs continues to roll out this summer.

Last month, TechCrunch published a review of the crypto industry, concluding that over a thousand projects were already considered dead, despite some still having a presence on exchange and coin listings. The overwhelming majority of failed projects were in the form of short-lived ICO projects, which barely made it out of the fundraising period before dying in the interim following coin issues.

Research out of the Boston College Carroll School of Management supported this claim, when they found that over half of all ICOs die within the first four months of issuing their tokens. Only 44% of the projects were able to sustain any sort of growth or momentum past the four month mark, with the survival rates dipping even further thereafter. While they concluded that the profits for ICOs are still substantial relative to the traditional stock market (about 82% ROI in 2018), there is a significant drop-off in return from 2017, where some investors were collecting four-digit percentage gains on their investment. In addition, the risk of investing in ICOs has steeply increased despite the fall in return, which the researchers found antithetical to good investment practice. They also found that most of the profit surrounding ICOs occurred in the first week of token issues, with a steep drop off past the two week and two month-mark, thereby recommending that ICO investors sell their coins as quickly as possible to insure the greatest risk/reward return on investment.

All of this is troubling given the growing landscape of ICOs in 2018, already surpassing the total volume of projects issued in 2017 despite being only halfway through the year. As prices for established cryptocurrencies continue to plummet, more developers are drawn to the industry of cryptocurrency via the ICO format as an unregulated road to riches in the volatile market. However, a new study concludes that the majority of these “developers” are more akin to scam artists, and that the entire industry should be vigilant in promoting and reviewing ICO projects.

Issued by the ICO advisory firm Statis Group, the research concluded that 80% of ICOs in 2017 constituted a scam. The study cites the exponential growth of cryptocurrency projects as leading to the variability in quality, up from just 14 crypto assets in 2013 to over 1500 currencies at present. While the study examined the full breadth of ICO existence in 2017, from initial proposal of the project to when the coin was ultimately available for trading on exchanges, the evidence was damning: only 20% of initial coin offerings during the year passed the criteria for being a legitimate project; the rest were scams. Three percent of the total ICO volume was declared “dead” by the end of the year, which the researchers referred to as no longer being listed on exchanges for trading. Which means, in less than a year, some coins had managed a proposal, funding, and token issue only to be such a colossal failure that exchanges would no longer list them for trading.

On a positive note, the research concluded that the majority of  monetary value was being funded to projects that the analysts rated “higher-quality”, despite the total volume of projects skewing heavily towards being a scam,

Over 70% of ICO funding (by $ volume) to-date went to higher quality projects, although over 80% of projects (by # share) were identified as scams.

While ICOs represent the current avenue for innovation and new development in the space of cryptocurrency, the vast majority of projects being labeled scams in addition to the high rate of failure is likely to draw more attention to the need for regulation in the space of crypto fund-raising.

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