Even after losing steam coming out of the summer and autumn, ICOs continue to attract investor attention. As we close in on the latter half of December, they’ve raised a collective US$4 billion over the course of 2017. This is not only a significant financial milestone, but it speaks to blockchain’s budding mainstream appeal as we move into an era of adoption and regulation.
Make Room for the Boom
Back in July, Autonomous Next, the fintech analytics company, published a thorough study on ICO fundraising trends. The report contained a number of detailed analyses, including notable ICOs, ICO funding by industry, and overall ICO growth. When it was published, the report found that ICOs had raised over US$1.2 billion in the first half of 2017, up more than 300% from the US$265 million they had raised between 2014-2016.
Now, that mid-year estimate is up almost 300%, as Autonomous Next reports that ICOs recently surpassed US$4.2 billion in fundraising for 2017. The majority of this growth came between the months of June and October, when investors poured a cool US$3 billion into ICOs and their projects. After seeing a record high of US$800 million in funding during the month of September, however, buying mania has largely subsided. November growth, for example, was sluggish compared to the rest of 2017, barely climbing above US$100 million.
A number of factors could be contributing to this sea change in ICO success. For one, when ICOs were reaching their peak, many investors were of the mindset that they could easily double or triple their gains by selling once a coin entered the market. As this approach became more commonplace in the community, the strategy became less lucrative, and ICOs depreciated in value once they hit exchanges. Thus, it became more advantageous to buy a coin once it dropped in price post-ICO.
The November and December Bitcoin bull market may be another contributing factor. In the past two months, Bitcoin has more than tripled its valuation after a steady rise from US$3,000 to US$5,000 in September and October. The majority of the crypto markets benefited from this bull run, especially the top 10 coins, all of which experienced all-time highs in the wake of Bitcoin’s own. With Bitcoin now on the march to US$20,000, it’s likely that would-be ICO investors would rather hold top market cap coins than risk losing potential profits on unproven projects.
As the study details, we’re not only seeing impressive gains for ICOs, we’re seeing industry expansion as well. In 2014, ICOs fell into two categories: cloud services and cryptocurrencies. Now, their industries have increased nearly five-fold. Since the beginning of 2017, there have been ICOs for cryptos in the IoT industry, banking and payment systems, financial investment services, and core tech, among others.
Along with its overall market growth, ICOs have demonstrated that blockchain is maturating into the realm of mainstream business and enterprise solutions. With the new year will come working products, main net launches, and public services from a number of cryptoassets. The diversity of ICO projects is a testament to the applicability of blockchain and the versatility of its use cases for everyday services.
2018: An Institutional Era
With mainstream adoption comes public and institutional attention, and this attention is an open invitation for governmental regulation.
We’ve already seen a number of governments step into the cryptosphere and seek to regulate it. In South Korea, the government has set guidelines for exchanges and sought to curtail investment risks for its citizens. A while back, the government even enacted an outright ban on ICOs to protect its populace from scams and fraudulent offerings.
Meanwhile in the US, the Trump administration has been relatively silent about how the United States intends to approach a maturing blockchain industry. The US Securities and Exchange Commission, however, has started to establish its own regulatory guidelines for ICOs.
In a December 11 statement, SEC Chairman Jay Clayton roughly conveyed how the commission intends to approach cryptocurrencies generally and ICOs specifically in the future. “By and large,” Clayton wrote in the memo, “initial coin offerings…involve the offer and sale of securities and directly implicate the securities registration requirements and other investor protection provisions of our federal securities laws.” While Clayton does not believe all ICOs fall under this classification, in the future, ICOs will have to either a) prove that they do not function like a security or b) register as such with the SEC.
Ultimately, the SEC’s efforts are in line with the South Korean government’s regulations. With regulation, Clayton hopes to prevent “opportunities for fraud and manipulation,” and he believes proper licensing will protect investor interests.
These regulations, Clayton holds, should not be seen as a hindrance to crypto’s potential. “The technology on which cryptocurrencies and ICOs are based may prove to be disruptive, transformative and efficiency enhancing,” he stated. Overall, the SEC Chairman is positive about crypto’s future outlook amidst increasing regulation, and he’s “confident that developments in fintech will help facilitate capital formation and provide promising investment opportunities for institutional and Main Street investors alike.”