The latest news from the cryptocurrency market and the call for regulation suggest that there is indeed an ICO bubble forming. Before we take this matter by its crux, it is imperative to study what an ICO is and how it has resulted in the creation of a bubble.
What is an ICO?
ICO or Initial Coin Offering is very similar to IPO’s or Initial Public Offering. The term IPO would definitely ring a bell in the mind of those who have studied finance before. IPO is the term referred to the means by which a newly formed limited company achieves its initial shares or public offerings. ICO on the contrary is an unregulated means by which unregulated funds and capital are being generated for dubious cryptocurrency ventures.
A startup firm that is opening a new cryptocurrency venture will offer an ICO to bypass the regulated and rigorous capital raising process that is offered by most banks and venture capitalists. In an ICO campaign, the startup is safe from all regulations and offers a percentage of the cryptocurrency to people who back the project during its infancy. The cryptocurrency is offered in exchange for other established cryptocurrencies, but the hot favorites are Bitcoins.
Where the Bubble Lies
Data from the internet suggests that there have been more than 300 ICOs of crypto assets to-date. This unregulated market has become a safe haven and a breeding ground for dysfunctional biz models and scams alike. What we are seeing is millions of ICOs, all copying each other and taking over millions of dollars in investor funds.
Almost all of these ideas have been launched over a disruptive whitepaper and team member profiles that are largely fake, but are tempered with to portray them as real. Very much unlike the concept of regulated IPOs, ICOs tend to cash in on the greed present in the eyes of the newbies and influence them into making wrong investment decisions.
Millions of seasoned investors and newbies alike are in a race against time to get a grasp on ICOs. They expect returns of more than 100 times on their initial investment, but eventually end up losing more than what they had expected to gain. Newly ICOs are seeing bubbly variations, with many of them yet to release a working service or product.
Research suggests that there is at least one ICO seen per day at this moment in time. A lot of these ICOs do tend to have the hallmark of a scam, but one that is hard to differentiate for noobs looking to be part of the crypto boom. All of these ICOs are just taking advantage of the hype and speculation by crowdfunding under the disguise of a cryptocurrency.
The issue has been brought up and recently news came in that Chinese regulators are considering a crackdown after reports of high sums being generated by ICOs on a daily basis.
The bid to regulate ICOs is much needed as it brings into consideration the fact that more than a million of innocent investors from across the globe could be hurt if a market collapse similar to the dotcom bust happens.