What defined the year of 2017 in the crypto world was the fulminant rise in initial coin offerings. This new crypto era spawned hundreds of new projects trying to gather funds through initial coin offerings (ICOs).
But many of these projects either failed or are no longer operating today. 2018 recorded a huge disinterest in ICOs, as most of the projects that used the 2017 momentum to raise funds for their operations never saw any results. 2019 was also not too kind with ICOs, as the trust of investors continued to diminish amid scam scandals and failed projects.
We believe that in 2020, initial coin offerings are most likely going to fade in the background for several reasons.
Investors Are More Sceptical
There are many scams in the crypto world, and many have entered the space through an ICO. Also, there have been many projects that have lied during the ICO process, so that they secured the funds they needed and then vanished.
Other fraudulent practices included faking team members, making false claims about development or prototypes, or outright copying the whitepaper of another project.
As many investors have lost their money in ICO scam, it is natural that now they would be wary of any new type of project trying to launch itself in this way.
High Risk and Few Returns
Investing in an ICO is basically putting money into a business that hasn’t yet created any product. You actually invest in the project’s promise to build that product. And if you are one of the few lucky investors that get to see the product launched, then you will have to hope it does well enough on the market for you to get some profit or use out of it.
There is a high risk that the project will not meet their deadlines, and this leads to poor returns.
Of course, you’ve heard of many successful ICOs, but given the sheer number of ICOs being launched on a daily basis, only a small percentage of those actually make it. To be more precise, the success rate is of 1%, which is not at all encouraging. People don’t risk their earnings even when there is a 50% chance, so why risk at 1%?
Regulation
When ICOs first launched, there was no regulatory framework for them at that time, so naturally, the issuing companies or developers did whatever they wanted in their token sells.
But then in 2018, various world governments and financial regulators started cracking down on how projects and companies were conducting their ICOs. As a result, many scammy initial coin offerings decided to either relocate to countries with laxer regulations or to leave the space entirely.
Also, the repercussions of not complying with the law are rather harsh, so many ICOs might have just been discouraged from entering the market.
As more and more scam ICOs are being exposed and taken to court, the regulations for ICOs will continue to solidify. Even if these new laws might not scare away all projects, it will certainly make things more difficult for launching an initial coin offering.
Not Accessible to the Average Individual
In certain countries, the financial regulator will prevent or outright ban individual investors from participating in ICOs. In the US, only institutional investors are able to invest. This is because institutional investors have to meet much stricter criteria for investing than the average person.
Investors Are not Interested Anymore
Out of the thousands of ICOs in existence, the market is saturated with hundreds of copies based on other main projects. They bring nothing new to the table or are so complicated to use that they have no real value or use to the average person.
As investors are repeatedly exposed to cloned projects that have no defining features, they have grown bored of seeing the same thing recycled over and over again.
New Competitors
As initial coin offerings have become a system that has lost trust, investors are looking for new ways of securely putting their money into both the token and the company. However, in recent times, there has been an increase in interest for “STO,” which stands for security token offering.
The STO merges the flexibility and democratizing of the ICO with the traditional security and regulations applied to securities, which would help restore investors’ trust in decentralized financing.
STOs are more practical from a regulatory point of view, as know your client (KYC) and anti-money-laundering (AML) requirements are implemented in order to provide transparency within security token contracts.
Final Thoughts
A great number of analysts and specialists from the market have stated that ICOs are pretty much dead. CEO and chairman of Galaxy Digital, Michael Novogratz, said: “The ICO market is pretty much dead right now.”
Barry Silbert, CEO and founder of Digital Currency Group, also stated in an interview that ICO was “dead” and “over.”
“86% are now below their listing price; 30% have lost substantially all value. An investor purchasing a portfolio of The Class of 2017 ICOs on 1 January 2018 would most likely have lost 66% of investment. Of the ICO start-ups, we looked at from The Class of 2017, only 29% (25) have working products or prototypes, up by just 13% from the end of last year.”
On October 1st, LongHash published a report which confirmed that ICOs are no longer profitable.
“Even after the onset of the bear market in January 2018, ICOs were still happening at a rate of well over a hundred each month, but by 2019 the flow of projects had dwindled to almost nothing,” LongHash concluded.
In 2019, ICO projects amassed around $338 million in funding, which is 95% less than in 2018.
“It wouldn’t be a surprise to see the ICO model vanish completely in 2020,” said the researchers at LongHash.
It is also true that people will spend more when they have more. As the crypto market has seen a sharp decline over the last year, this has affected the net worth of many crypto investors.
Investors are more likely to take part in initial coin offerings during the bull market, as their crypto holdings hold more value. But will this mean that once the crypto winter is over and the bull run hits the market, ICO investment will start booming again? From the looks of it and according to expert opinions, it seems that ICOs don’t have much of a chance for a glorious comeback.
Featured image: edgecoinnews.com
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