- The market for ICOs is off to a red-hot start this year, but that may soon change.
- The crypto industry is shifting to so-called security token offerings as regulators crackdown on ICOs, industry experts say.
Cryptocurrency fundraising is off to a record-breaking start this year, according to new data from crypto-watcher Autonomous NEXT.
But the rest of 2018 could see the market for ICOs fizzle out, according to a number of cryptocurrency experts who spoke with Business Insider on Tuesday at “Battle of the Cryptos,” an industry conference in New York.
Autonomous NEXT found that $2.6 billion was raised via initial coin offerings from the beginning of 2018 up until the end of February.
In an initial coin offering, a company issues its own digital currency to raise money to build out a new business or product. The market, which is known for its big dreams and fair share of fraud, has come under intense regulatory scrutiny in 2018. Still, fundraising appeared to continue unabated.
“Funding continues to accrue to new projects, as well as ongoing ICOs, faster than this time last year, but the increased regulatory attention to the space as well as the choppiness in the price of the large cap crypto coins has delivered a February that is slower than January,” Lex Sokolin, a partner at Autonomous NEXT, said in an email.
The Securities and Exchange Commission earlier this month issued a number of subpoenas to companies and individuals involved with initial coin offerings, Business Insider previously reported.
In some cases, companies have raised millions of dollars from ICOs. Overstock, the company best known for its ecommerce platform, for instance, has raised more than $100 million from its ICO, which was only open to accredited investors, chief executive Patrick Byrne told Business Insider.
The general consensus at “Battle of the Cryptos,” however, was that the Wild West days of ICOs are over.
“I’m surprised by those numbers,” Byrne told Business Insider after a panel, referring to the data provided by Autonomous NEXT.
“Last year there was an explosion in the space, but the SEC’s actions – diving into everything – it’s pumping the brakes,” he added. “You’d have to be nuts to run an ICO now, unless you’re as pure as the new-fallen snow.”
Byrne said the industry is moving towards so-called “STOs,” or security token offerings. An STO represents actual ownership in a business or asset, providing investors access to dividends and governance rights, in certain cases. With an ICO, an investor is only guaranteed the future value of a token they purchased (which of course can go to zero).
“The writing is on the wall for a lot of these guys,” Trevor Koverko, the chief executive of Polymath, a company building out a platform to help companies launch STOs, told Business Insider. “They know that if they run an ICO and open it up to US investors, they’re going to get shut down.”
A number of companies including the Barbados Stock Exchange are preparing to launch an STO on Polymath, Koverko said.
Investors are also losing interest in initial coin offerings, according to Joe DiPasquale, the founder of crypto fund of funds BitBull Capital. He told Business Insider that cryptocurrency hedge funds, of which there are more than 200, are opting for other strategies in crypto outside the ICO market.
“A lot of LPs are interested in market neutral strategies such as quantitative and arbitrage,” he said.
“Market directional strategies such as ICO investments are falling out of favor.”
Still, crypto markets are unpredictable by nature. Sokolin tells Business Insider it is too early for the market to say ICOs have reached their peak.
“But the direction of March will be an important indicator.”
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