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Brian Kelly Believes ICOs Will Be Held to a Higher Standard

Initial Coin Offerings (ICOs)–Brian Kelly, founder and CEO of the digital investment firm BKCM LLC and a regular on CNBC’s popular crypto-based programming, has said in a recent interview that he believes the days of ICOs coming out of nowhere to million-dollar valuations is over. Instead, he believes the market has already moved towards a more mature view of the innovative funding cycle of cryptocurrency, with ICOs largely being held to a higher standard than they were even at the start of the year.

In part, the new approach has been forced upon the market and investors due to the ongoing bear cycle conditions. Rather than being flush with capital from Bitcoin and altcoin bull-runs to end 2017, most crypto investors are having to take a spare approach to their investment, in addition to legitimate fears over where the price of crypto will be at the start of an ICO buy-in versus when the coins are actually released on the market.

Speaking in an interview with CoinTelegraph, Brian Kelly expanded on his view of ICOs and how he sees the market responding to such a shift. As opposed to doing away with the controversial, and at times outright scammy method for raising capital, Kelly believes the initial coin model will stay for some time in cryptocurrency, albeit at a change from current standards,

“It will stay,” Kelly said, “but with a little change.” He went on to add, “the days of a whitepaper and a dream and $30 million are probably over.”

Kelly also gave details on what he considers when reviewing a project to invest in, listing positive factors such as promoting activities that will increase network adoption, as well as having a strong presence in industry catalysts such as conferences.

Despite regular news stories of ICOs making off with investor funds or failing to fulfill whitepaper promises (the most damning being a study published in July that found 80 percent of all ICOs could be classified as a scam) the overall health of the market has been strong throughout the year. Since the midway point, ICO volume in 2018 already doubled that of the previous year, with developers in nearly every industry flocking to cryptocurrency to cash in on what they view as easy profit. At the very least, the ICO model does provide a fast and efficient way to raise funds for projects, as opposed to the more gated approach of raising through angel investors and venture capitalists.

However, ICOs also provide very limited returns for investors, particularly those who are hoping to hold their coins for appreciation or as a long-term investment in a project. Research out of the Boston College Carroll School of Management found that over half of all ICOs die within the first four months of reaching the market, with the vast majority of profit to be made occurring in the first two weeks. Investors who fail to sell in that window are not only exposing themselves to much greater risk relative to their early cash-out counterparts, but they also run the risk of the entire project collapsing or failing to gain any adoption via exchanges.

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ICO Market Doubled in a Year, Investing up Ten-Fold

Initial Coin Offering–Despite the sinking price of cryptocurrency across the market, initial coin offerings have managed to fair well in terms of growth through 2018. While the entire industry is embroiled in a bear cycle that has continued into the eighth month of the year, ICOs have doubled since 2017, while drastically increasing the amount of investment funds.

According to a report by ICORatings, a website that publishes independent research about upcoming and launched projects, the entire ICO market has doubled within the last year, with projects having already raised $11 billion throughout 2018. To put that figure in perspective, ICORatings reports that ICO investing through Q1 and Q2 in 2018 is ten times that over the same period last year, showing a substantial boom in investing in new coin projects. While the ICO market has drawn significant criticism over the last several months due to the propensity for scams, empty projects and unproductive profit seeking through cryptocurrency, the overall health of ICO investing appears to be thriving.

The report includes specific details about Q2 2018, stating that 827 new projects raised over $8 billion in funding, up from $3.3 billion in Q1. The 151 percent increase through the second quarter of the year is reflective to the interest generated by cryptocurrency, in particular the low barrier to entry for startups and developers that is afforded through the initial coin offering model. However EOS, currently the fifth largest cryptocurrency by market capitalization, made up the largest share of the ICO pie,

“Funds raised by EOS project account for most of this increase, they have collected $4,197,956,135 for a year-long ICO.”

ICORating also highlights Europe as the leader for all ICO projects, launching 46 percent of new developments this year, with North American investors contributing the most capital. In addition, the report mentions that Asia has seen an increase in investment capital flowing into ICOs, despite a decrease in the overall number of projects launched.

While the current atmosphere surrounding cryptocurrency and Bitcoin hinges upon the U.S. Securities and Exchange Commission’s ruling on the creation of a BTC ETF, ICOs have already started to incorporate larger amounts of institutional investors. The report shows that institutional capital in ICOs is on the rise, while retail investment continues to decline. ICORating finds this to be a favorable position for the growth of the ICO market and general well being of cryptocurrency, as greater institutional interest leads to higher standards in the development of the projects. In addition, the fundraising of ICOs will become more dependent upon “how well projects cooperate with investment funds,” thereby raising the standard across the industry.

Despite the positive news published by ICORating on the growth of the market, reports earlier in the year revealed the industry still has room to grow in terms of achieving higher quality. A study published by Statis Group found that 80 percent of ICOs in 2017 would fit into a category of “scam,” relaying the experience of investors who have found themselves duped by empty projects or teams that run off with investment funds. However, most have recognized that ICOs offer a high degree of innovation as a model for funding new projects and, despite the bad actors filling the space, are helping to grow the industry in terms of development. 

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