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The crypto world provided many entrepreneurs a great opportunity to materialize their ideas by using funds raised during initial coin offerings (ICOs). Starting a new company with capital has never been this easy. ICOs started back in 2014; however, it wasn’t until the end of 2017 that this market had really become popular.
During early 2018, we could see that huge chunk of all initiated ICOs were raising enough funds which allowed them to start their projects. Investors flocked to ICOs as this offered them a higher return once the project went live. This market had become so popular that we could see even the simplest of ideas making use of ICOs to raise funds.
While the ICO market was a great way for entrepreneurs to fund their ideas, there were many who exploited this model in order to scam people. So, the ICO market was filled with several ICOs that were listed only to steal the investor’s money.
In order to put an end to this, the SEC jumped in and laid out certain regulations that needed to be followed by ICOs in order to have them listed. While this has resulted in a decrease in ICO scams, it has also hurt the entire ICO market. When this is combined with the multi-year crypto bear market, investors are clearly staying away from the ICO market altogether. Let us now have a look at how the ICO market has suddenly come to such a grim stage.
Impact of SECs move on the ICO industry:
Once the number of scams in the ICO market started to increase, the SEC stepped in and laid out certain rules that an ICO needs to adhere to before the official ICO sale starts. This certainly helps to cleanse this market of all the scams that people went through. However, this has also adversely affected the legit ICO projects as well.
When no such rules existed, entrepreneurs could easily market and get their projects funded. However, now that these rules do exist, ICOs need to be approved by the SEC before the ICO token sale period even begins. Not only is this time consuming but also requires the entrepreneur to spend more money. This move by the SEC has definitely spooked out a lot of investors in the crypto world. In fact, the funds raised during ICO sales went from $25 billion in January of 2018 to just $5 billion in 2019. This rapid decrease in the amount of funds raised has surely shattered the dreams of many entrepreneurs around the world.
TokenData recently tracked 2,500 different ICOs. Of this lot, about 55% of the projects were not able to raise enough funds to get the project started. Of the remaining ICOs that did manage to accumulate the required funds, only 15% of them are currently trading at a price higher than what they were offered for during the ICO sale.
These numbers clearly reflect the decrease in the interest of investors in the ICO market. Back in 2017 and early 2018, most of the ICOs raised the required funds in a very short duration and once the projects were live, the return that was earned by the investors was massive.
Back when the ICO market was extremely popular, several entrepreneurs took their efforts to the crypto world in order to raise funds. In an interview with The Wall Street Journal, a 21-year-old developer named Ivan Komar started to build a startup called Sponsy with the hope of having it funded through an ICO. The idea behind the startup was to connect people who required capital by using blockchain technology. However, as the whole crypto market took a nosedive, so did Mr. Komar’s hopes. He now intends to accept an offer of $60,000 to sell Sponsy. Such is the grim state of the ICO market.
What is next for the ICO market?
The rules set by the SEC are not all that bad. When the SEC stepped in, the scams did decrease. However, doing so affected the rest of the market as well. The whole ICO market seems to be going nowhere at the moment. Many Entrepreneurs do hope that this is a dormant state of the market and the ICO boom will return once the crypto bull run starts again.
Even though it is a little too late for entrepreneurs like Mr. Komar, wonderful startups might eventually use this model again to fund themselves.