Many considered 2017 a bumper year for crypto. As Bitcoin reached an all-time high of $20,000, the industry was attracting huge sums of investment, especially through the Initial Coin Offering or ICO. But what is an ICO?
Here, I explain what an ICO is and ask whether they are still relevant and what to look out for when investing.
What is an ICO
So, what is an ICO? An ICO is essentially a vehicle for a young business, start-up, or group of developers designed to raise investment toward developing their blockchain, protocol, or cryptocurrency. It is similar to how entrepreneurs may wish to crowdfund to secure investment for their business idea.
The key point is that investors are rewarded for their early trust through the allocation of the native crypto hence the term initial coin offering.
During 2017, ICOs were responsible for huge sums entering the market as many investors looked to cash in on this nascent technology. However, since 2018 we have seen a steady decline in their popularity. This is thanks mainly to the tightening of regulations as the authorities look to clamp down on scammers due to the high number of rug pulls which plagued the industry. It is a sad fact that during this time, many criminals, fraudsters, and swindlers were quick to exploit the naivety and lack of understanding that many people showed in the attempt to make a fast buck.
The resulting response from the authorities worldwide means that anyone wishing to conduct an ICO in 2022 must adhere to a much stricter set of regulatory standards that require much greater levels of documentation and verification to back up your work.
Media Hype
At the same time, the media attention surrounding crypto has changed from hype and headlines about overnight fortunes being made to a narrative that is more stable and utility driven. Consequently, the number of people looking to invest in ICOs has reduced dramatically. However, all that being said, there are still ways an investor can enter the crypto market at developer level, but without the high risk of becoming the victim of fraud.
The Initial Exchange Offering, or IEO, allows an investor to back a new project through a framework that an online cryptocurrency exchange already provides. This helps protect investors from illicit exposure while providing a safe environment through the provision of legal protection which was often so lacking in 2017. At the same time, investors can take advantage of already existing user bases and a cleaner, more straightforward regulatory process.
Protecting Investors
This new approach to cryptocurrency investment is having the right effect. Not only are investors protected, but developers looking to launch their projects are typically allocating more resources to ensure that all regulatory boxes are ticked before the project even approaches the IEO stage. As a result, we see fewer IEOs, but the projects appear to be grander and more established, which has to be good for the industry.
As we progress through the decade, it is becoming increasingly obvious that comprehensive worldwide regulation is needed if we want to attract further new investment into the cryptocurrency space. In the current climate, the US SEC only recognises two projects as not securities – Bitcoin and Ethereum – with the rest of the market hanging in limbo regarding whether they offer an investor a return on their investment (security) or not. In this light, the outcome of the Ripple vs SEC case is sure to determine the intricacies of this emerging and exciting new asset class.
