Initial Coin Offering or ICO, is one of the hottest buzzwords in the financial market right now. As we speak, companies and entities around the globe are raising tens of millions of dollars, sometimes just in seconds, by offering digital currency. In some cases, there is not even a real company on top, but on the promise that they are going to build something or based on expected future operations, a new currency is issued and suddenly millions have been collected.
So, what exactly is an ICO and what’s the buzz all about?
ICO’s has become a popular way to fund so called “blockchain projects”. It has been seen upon by many as an important evolution on how companies, projects or ideas are funded, without the rigid and bureaucratic regulations traditional funding processes have to abide by. There is no requirement on what the ICO campaign must provide prior to the investment, but normally the business idea or project is presented in what is called a “white paper”, supported by a web site, plus numerous social media accounts and online forums.
The U.S. Securities and Exchange Commission (SEC), has clearly stated that they will now look more closely into how ICO’s operate and will investigate how and where to regulate their activities. The same goes for the Monetary Authority of Singapore (MAS). No one was surprised, or at least no one should have been surprised, that SEC is now looking into how to regulate a market place which by many has been referred to as the “perfect storm”, a mix of the Wild West, Klondike and Dot.com bubble all in one. The similarities of an ICO and the traditional Initial Public Offering (IPO) is conspicuous, not only the names are similar, but they share many of the same principles. However, SEC has only concluded in one specific ICO; The DAO (Decentralized Autonomous Organization), that collected $150 million last year, but they have not clarified if other ICO’s should be considered as securities or not. No additional general guidelines were provided by the SEC, other than stating that it will be dependent on the specific ICO, and they will continue investigating them independently.
What will be the future of ICO’s?
As usual, the “experts” in the field disagree. The blockchain community still strongly believe in the decentralized and independent way of raising funds, away from the centralized and regulated finance market. Still, this is where the two worlds collide as the traditional finance markets are eager to get their “piece of the pie” in this fast-growing capital market place. No matter what that will happen, the future of ICO’s will be exciting for everyone to follow!
Challenges and Opportunities:
Regulations aren’t always a bad thing, but it could assist in excluding many of the unserious players in the market place.
There will still be a need for investors to be cautious, and there will still be the challenge of making informed decisions based on essential facts rather than speculations and promises.
Still, there will be excellent opportunities for innovating projects that are able to adapt to potential upcoming regulations and could even lead to more mainstream investors entering this somewhat still, unfamiliar territory.