2017 has been huge for Initial Coin Offerings (ICOs). According to the latest stats from Coinschedule, over 200 ICOs have raised over $3.5 billion in funding so far this year, surpassing traditional VC and crowdfunding efforts within the same period.
The explosion of ICOs has been happening on the back of innovations in the blockchain, the decentralized ledger that has been revolutionizing everything from supply chain management to wholesale drop shipping across the globe.
The rising popularity of ICOs has also been closely associated with the soaring value of bitcoin, ethereum, and other supporting cryptocurrencies. Bitcoin, for instance, has shot up from the sub-$1,000 values registered 12 months ago to a whopping $18,000 price tag in mid-December. The bullish environment created by the rapid rise in value for these cryptocurrencies has led many to conclude that cryptos, in general, are a bubble, one that could burst without notice.
This fear has been one of the main reasons why regulators across the globe have been moving to exert more control over ICOs. In addition to the highly volatile nature of cryptocurrency investments, ICOs have become dens for conmen and get-rich-quick artists who sell non-existent products and services and quickly cash out once the ICO ends.
So, here are a few takeaways from the raft of ICO regulations that have been sweeping the crypto world in 2017.
Not all regulations are equal
China was among the first countries to ban ICOs outright, which was a relief to many considering that most Chinese ICOs were scams built on non-existent platforms. South Korea and Vietnam also banned ICOs, with Russia instituting laws that make it difficult to run an ICO.
In the United States, the Securities and Exchanges Commission (SEC) and the Department of Justice (DoJ) are becoming more involved in the goings-on within the ICO space. The SEC has filed numerous fraud charges and warned celebrities against some ICO endorsements, with the DoJ going a step further with criminal charges against errant ICOs.
And then there’re Mauritius, the Cayman Islands, the Isle of Man, and Gibraltar, traditional offshore centers that have spread the welcome mat for ICOs. While ICOs will be regulated in these countries, regulations will be flexible to allow for these blockchain-based solutions to thrive.
Regulations are making it easier to spot healthy ICOs
In addition to protecting investors, regulations are actually helping investors identify ICOs that are most likely to be beneficial. A large proportion of ICOs usually start out as good ideas, only to fail along the way because of poor implementation.
With regulations, an increasing number of ICOs are beginning to make sense. Many are moving away from being wholly speculative to offering working platforms with tangible products and services, which will help build up the blockchain and the entire crypto world.
Effects on bitcoin and other cryptos will be minimal
When China first instituted the ban on ICOs and cryptocurrency exchanges, the prices of most digital currencies tanked. The value of hundreds of digital currencies fell by as much as 18 percent. And on the day that the SEC published its proposed measures to regulate American ICOs, the value of ethereum, the cryptocurrency that powers most ICOs, fell by almost 10% in a day.
Still, most cryptos recovered in the days and weeks following these developments, a trend that saw the prices of bitcoin and ethereum hit record-setting levels in recent days. ICO regulations haven’t had a profound long-term effect on bitcoin or any other cryptocurrencies, even on ethereum, which is a good thing for crypto investors and the industry in general.
Regulation for ICOs was initially viewed as a way for governments to reign in and potentially disrupt the blockchain. But with fraudulent ICOs coming up every other day, an intervention from the authorities was necessary, especially after the $50 million hack on The DAO that prompted the SEC to act.
At the end of the day, however, regulation is suitable for ICOs and their investors. A regulated ICO environment is safer and enables larger institutions to come into the mix, helping to spur investments and nurture startups in the developing new world of fintech.