Statistics available from multiple sources, including market research companies such as Fundstrat, are suggesting that the initial coin offering (ICO) market is starting to dry up.
The correction in cryptocurrency prices is likely to blame for this event. The once popular digital token industry is now struggling to find new investors during this bear market.
At the peak of the ICO hype period in 2017, projects raised over $6.2 billion through multiple token offerings. Amid waning interest throughout 2018, that number climbed slowly to $6.3 billion. However, in 2019, investments have now fallen to near-zero levels.
That said, the lack of takers for fresh token sales has been termed as a positive and healthy sign by various researchers.
The End of Free and Easy Capital
What the ICO market became was reminiscent of the California Gold Rush of the mid-nineteenth century. Cryptocurrency projects had absurd and illogical valuations, team members would receive a significant percentage of funds, and the white papers were full of complicated projections and technical jargon which was rarely ever peer-reviewed.
Now, data released by Fundstrat has suggested that interest in ICO fundraising is falling fast. The investment figures fell from $500 million in December 2018 to $23 million by March 2019. At its peak, blockchain projects had raised a staggering $1.7 billion in March 2018 alone.
Thomas Lee has suggested that this fall signifies the end of free and easy availability of capital through the ICO route for blockchain companies. While several projects raised over $100 million in token sales, many were not even able to build a working prototype of their product or service.
ICOs, Meet SEC
Ponzi schemes also remain a major concern, with founders and organizers making away with investors money. This forced the US Securities and Exchange Commission (SEC) to begin scrutinizing movements in the ICO industry. The financial regulator began a crackdown and closed down a few projects that promised guaranteed gains.
The agency argued that companies chose token sales over listings on an equity bourse to avoid regulatory scrutiny. Moreover, some tokens that did not have any utility on the native platform should have been classified as security tokens and conformed to the Securities Act.
Today, the SEC has reaffirmed that it wants to treat security tokens on the same page as traditional security offerings and bring them on par.
Bear Market and Innovation
According to various experts, while the bull market is great for investors, a bear market is better for innovation. Many believe that 2019 and 2020 will see unprecedented innovation in the cryptocurrency and blockchain industry while the wheat is separated from the chaff. Matthew Hougan, Global Head of Research at Bitwise Assets, and Digital Currency Group founder Barry Silbert have both predicted that almost 95 percent of tokens will see a complete erosion in value.
Have you invested in an initial coin offering (ICO) recently? Let us know in the comments below!