Initial Coin Offerings: A 10+ Billion Dollar A Year Market With Fundamental Flaws

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According to a recent study, over 20 billion dollars have been raised through ICOs since the start of 2017, and the market is growing rapidly. In the same study, researchers also note that the market isn’t very lucrative for investors and that most of the projects either fail or turn out to be scams.


ICO investments shouldn’t be overlooked. However, you need to be cautious when investing.

The ICO Market

An ICO, or Initial Coin Offering, is the cryptocurrency industry’s equivalent of an IPO. It’s a way for developers to raise money and spread their project in order to get a cryptocurrency off the ground.


In 2017, the ICO market took off and over the course of 12 months, more than 7 billion dollars were raised through ICOs. This year, the numbers are even higher. According to a study done by Autonomous Research, more than 12 billion dollars have been raised through ICOs so far in 2018.


Unfortunately, the same study also found out that a large part of the invested money never offered any returns to the investors. In fact, most investors never get to see the coin they invest in and in many cases the money is already long gone.


This is an issue reported on by many trusted news sources in the industry, including and Reuters. They recommend an absurd amount of due diligence or staying away completely.

Problems with the ICO Market

The issues started when the ICO market exploded, and developers and others started to notice the incredible opportunities the market offered.


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According to the study done by Autonomous Research, there are two significant problems with the industry today, and they are both rooted in the lack of regulation.



  • Failures


As many as 50 percent of all ICOs fail within a year of launching. Some of them fail because they aren’t able to raise enough funds while others fail because the project is flawed. This is where ICOs and IPOs really differ from each other.


For a company to be listed on a stock exchange, they will have to live up to certain standards, be approved by regulatory bodies, and offer a solid product and service. An ICO, on the other hand, can be initiated without any decent project and also without any regulation.


Naturally, this leads to people launching sloppy projects in hope of raising enough money to optimize the cryptocurrency at a later stage. But, as you can imagine, that rarely happens.



  • Scams


The other issue, and potentially the biggest issue, is all the scammers that have taken advantage of this unique situation. Over the past two years, hundreds of companies have launched so-called cryptocurrencies and raised millions of dollars only to disappear before the launch date.


In fact, as many as up to 30 percent of all ICOs in the past two years have been scams. And due to the lack of regulation and overwatch, there is nothing stopping this development.

The Successful Projects

Obviously, people wouldn’t be investing unless there was a chance that they would make some money from it, and not all ICOs are bad investments. In 2018, two projects represented almost half of all the raised funds and they can both be considered good projects with a potential of offering investors a decent payoff.


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EOS raised a total of 4.2 billion dollars during its ICO and Telegram raised another 1.7 billion dollars during theirs. So far neither project has turned out to be a scam or failed, although only time will tell what will happen.

So Should I Invest in an ICO?

If the right opportunity arises, then yes, I think you can consider investing in an ICO. Although, as always, you should only invest in projects and securities that you truly believe in, and when it comes to ICOs you have to be extra careful. If anything sounds too good to be true, or if a company can’t provide a good enough white paper or even a finished project, you’re likely better off not investing.


Moreover, things might change soon since the world’s regulatory bodies are scrambling to get a cryptocurrency regulation in place and it seems like ICOs are at the top of everyone’s agenda. Who knows, in a few years from now the market might even be a safe haven where new cryptocurrencies and investors can flourish together.


Disclaimer: This content does not necessarily represent the views of IWB.


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