Is The Bloom Off The Rose?

Is the ICO bloom falling off of its rose? ICO funding has fallen to just over $300 million, taking it to where it was in May of 2017, researcher Autonomous Next reported. The fall in the crypto market’s capitalization could be pushing the trend, particularly Ethereum, the foundational platform for a large number of ICOs.

Last month, Biswa Das, who operates BloomWater Capital, a cryptocurrency quantitative hedge fund, noted some investors were cashing out of ICO startups over concerns that the bear market will continue, Bloomberg reported. He said the startups don’t have enough cash management experience or treasury management, so they are selling early and putting more pressure to bear on the market.

A Bubble Waiting To Burst?

Jihan Wu, CEO of Bitmain, last month called the ICO funding model a bubble that will eventually burst. In one or two years, he said it will disappear.

Wu said traditional equities such as stocks and bonds,will migrate to a tokenized platform and the ICO model by which investors purchase tokens that can be regulated as securities but don’t entitle buyers to dividends or voting rights will eventually collapse. This is because investors contribute to the crowdsales thinking they will be able to sell them at a profit.

Spencer Bogart of Blockchain Capital LLC agreed, saying investors are souring on ICOs and tokens.

Ella Zhang, the head of Binance’s new venture division, as early as June called ICOs a bubble waiting to burst.

Ethereum’s Woes Undermine ICOs

Ethereum’s market capitalization erosion could also be undermining ICOs.

Arthur Hayes, CEO of BitMEX, said ICO investments were coming from venture capital firms that would dump their Ether holdings due to the bear market.

While the market erosion hasn’t halted Ethereum’s use as a computing platform – as more than 1,000 dApps have deployed onto the Ethereum network since 2017, according Alethio, an analytics firm – investors have not been impressed by developer contributions to Ethereum, Autonomous Next observed. The reason could be that most of the cryptocurrency funds established since mid-2017 – more than 370 – missed the 2017 crypto boom. ICOs have actually undermined Ether’s function as a currency, the researcher noted.

Another possible factor impacting ICOs is that security token offerings (STOs) have been on the rise, possibly supplanting them. Tokeny, a traditional ICO platform, has switched to supporting STOs. A $250 million real estate tokenization and a $50 million equity tokenization for a fintech both used Tokeny recently, collectively matching the complete ICO market last month.

Also read: We’re waiting for ICO bubble to pop: head of Binance’s $1 billion VC fund

Fraud Strikes ICO Credibility

ICO fraud, which has plagued ICOs from the start, could also finally be taking its toll.

An international task force has investigated more than 200 ICOs and investment products. The North American Securities Administrators Association launched “Operation Cryptosweep” in May and has taken 47 actions against ICOs and companies marketing cryptocurrency investments in the U.S. and Canada, winning praise from SEC Chairman Jay Clayton.

Satis Group Crypto Research in July reported that around 81% of the total number of ICOs launched since 2017 turned out to be scams.

ICORating, a cryptocurrency rating firm, recently reported that more than half of all ICOs – 55% – failed to meet their crowdfunding goals in the second quarter of 2018, 5% more than the number that failed in Q1 2018. This did not stop money from flowing into ICOs as a whole, however, jumping from $3.3 billion in the first quarter of 2018 to $8.3 billion in the second —a 60% gain.

Featured image from Shutterstock.

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