The evolution of ICO market
Friday, 02 March 2018
Gone are the early, wild days of the ICO market. While the ICO market continues to grow unabated, the rules of the game are changing and the market is slowly but surely maturing. In this article, I will take a look at the major trends in the ICO market and try to offer some predictions for the future.
The inevitable an much-needed regulation
As more and more countries are starting to regulate ICOs and cryptocurrencies in general, ICO teams are taking no chances. These days it is hard to find a big ICO not doing KYC and AML procedures and the teams are getting increasingly serious about compliance with applicable laws. However, it is only a start. Russia recently proposed imposing a capital requirement of 1.7 million Euros for ICO issuers and Christine Lagarde warned that crypto regulation is inevitable. Even Vitalik Buterin himself proposed a new kind of self-governing ICO model called DAICO, which would give more power to investors.
The recent guidelines from Swiss Financial Market Supervisory Authority which identified 3 types of ICOs: utility ICOs (not securities), payment ICOs (not securities, but will have to comply with AML regulations) and asset ICOs (treated like equities and bonds and will be subject to strict securities law requirements), were seen as a welcome first step as they removed uncertainty for token issuers. Many countries are now vying to become the go-to destinations for ICOs and year 2018 should be the year when regulatory and legislative environments finally catch up with the new model of fundraising. This should be welcomed and supported, as it will weed out the bad projects and protect ordinary investors from many ICO scams.
Corporations and Wall Street are coming
Companies such as Kodak and Overstock are planning an ICO, while Telegram's $2 billion ICO will become the world's largest. According to Bloomberg, the demand for Telegram coins is so high, that even funds are having trouble getting into the private pre-sale. Venture Capital heavyweights such as Sequoia Capital and Benchmark Capital reportedly expressed interest in the sale and the Financial Times reported that Kleiner Perkins Caufield & Byers is investing. According to Next Autonomous, the number of crypto hedge funds more than doubled in the four months to Feb. 15 to 226 and assets under management hit between $3.5 and $5 billion.
Subsequently, small investors will have an even harder time getting good deals or even getting into good ICOs. These days good ICOs sell out within seconds, and the emergence of ICO pools and funds with exclusive pre-sale access will make it practically impossible for regular investors to get in. Telegram and Wechat groups offering private pre-sale deals are reportedly charging a yearly fee of up to 500 ETH.
Lower ICO returns
While seed and pre-sale investors can still get handsome returns, in the past few months we have seen that investors coming in last and buying tokens at the final ICO price are usually the ones who lose out. This doesn't mean that there are no positive returns anymore, as you can still easily make 300% in a week by investing in a good ICO, but the age of 10,000% returns is probably over.
ICOs are just getting started
Even with the recent downturn in the crypto market, $2.67 billion has already been raised by 316 ICOs in 2018, while 2017 saw 885 ICOs raise $6.06 billion. With ICOs like Telegram raising $2 billion, total ICO funding this year will likely reach $15 billion.
With institutions and funds entering the field and inevitable regulation, the ICO market is about to look very different. Regulations should improve the overall level of ICOs and weed out the incompetent teams and projects, while the sheer number of new ICOs and intense competition for seed and pre-sale deals will likely continue to lower ICO returns for small investors. For better or worse, the ICO market will soon start to look a lot more like traditional financial markets.
This article was written by Vito Petan