One of the hottest and arguably the most controversial topics to be discussed in cryptocurrency offerings are ICOs or Initial Coin Offerings. ICOs, which started as a replication of Initial Public Offerings, have become an imperative and a very important part of the cryptocurrency sphere we know to have today in the world.
During the last couple of years, ICOs have developed as a great means to raise funds for a cryptocurrency venture. The lack of proper regulations and the increasing need for blockchain technology has meant that these ICOs end up raising money quickly. The hype towards them has driven a steep rise in their market value, which is now capped at a gigantic high of $177 bn.
Before we go on to discussing factors regarding their regulation, it is best to understand ICOs and the hype that is surrounding them. During the past few months we have seen an increase in the hype towards ICOs. This hype is a result of numerous cases where digital currency start-ups have had the good luck to raise millions right at the incipient of their journey. The Ethereum ICO also did feed the ICO fever in 2014, when it arranged an extremely successful and hyped ICO.
How Risky Is It?
Ever since the concept of ICOs was first developed, there have been numerous concerns from authorities regarding the legality of these ventures and the lack of regulations present in the market. The SEC, which regulates the financial market version of ICOs, known as IPOs, has warned investors of investing their money in these ICOs, since they have no idea regarding what their money is being used for. There is no guarantee or promise as to where the money will be invested. Since none of these ICOs are registered or recognized by the Securities and Exchange Commission, there is no legality involved in their operations currently.
“The rise of coin offerings has disrupted social and economic order and created relatively large hidden financial risks and in some cases may amount to fraud. Misleading rates schemes at home and abroad may constitute fraud and amount to illegal fundraising.”
China’s National Finance Association
Regulations and ICOs
Since we now know that ICOs are really risky business, it would be worthwhile to study how regulators view them. Regulators have turned their attention to ICOs but the major reason behind doing so is to monitor this largely uncontrolled market and come up with regulations that can put an end to this conundrum. Regulators in China stepped up recently to put a ban on all ICOs, since they were considered to pose a threat to the financial stability of the country.
But, despite all the threats of financial instability, one cannot just ignore the possibilities that will arise when ICOs do get regulated. Even a semblance of regulation in this market would lead to enhanced possibilities that can open the doors to a bright future for digital currencies.