The landscape of the initial coin offering market has changed dramatically over the last year. 2018’s “year of the ICO” saw initial coin offerings collectively raise almost $8 billion, with investor interest sparked by an end of 2017 run up that saw the total cryptocurrency market cap reach a staggering $800 billion in the first days of 2018.
The current state of the initial coin offering ecosystem, however, is a far cry from the glory days of Q4 2017. Initial coin offering performance has stagnated — ICO tracking platform ICORating data indicates that more than half of all ICOs in the latter half of 2018 were unable to raise more than $100,000, with only 4% of all 2018 ICOs successfully listing a token on an exchange.
The growing interest in security token offerings, or STOs, and the ever-growing expansion of regulatory control over the initial coin offering ecosystem has caused the ICO to fall aside. VC-backed accelerators and incubators are now emerging as a driving force in the blockchain industry — but is it all over for the ICO?
ICO Investors Wary of Scams
A long bearish trend within the cryptocurrency markets has kept the value of Bitcoin firmly entrenched below the $4,500 since late 2018, discouraging the speculative behaviour that drove the first wave of ICO enthusiasm. While crypto market trends contribute to lower ICO investment rates, however, a primary factor in declining ICO success rates is concern over fraud.
The US FBI recently outlined a number of key strategies that are used within the initial coin offering ecosystem to separate investors from their capital, noting that the bureau is currently investigating hundreds of separate cryptocurrency-oriented fraud investigations.
Scams are highly prevalent within the ICO ecosystem — data prepared by ICO advisory firm Statis Group in mid-2018 demonstrated that fully 78% of all initial coin offerings launched prior to data collection were fraudulent in nature.
The rapid development of security tokens, however, promises to function as a solution to the issue of initial coin offering scams and function as a regulatory compliant method that can be used by new blockchain ventures to capture startup capital.
Institutional Capital Still Interested in ICOs
Despite a reduction in retail investor interest in initial coin offerings, institutional investors remain highly interested in the ICO market. A survey conducted by the Global Blockchain Business Council (GBBC) from late December 2018 to January 2019 indicates that 41% of all institutional investors plan to invest in ICOs within the next five years.
Major enterprise players also remain entrenched within the ICO market — tech giant Microsoft (NASDAQ:MSFT) has recently begun offering Stratis’ ICO Platform via the Azure Marketplace, providing new ventures with a customizable “build your own ICO” system that integrates KYC functionality.
ICOs Walk Regulatory Tightrope
Despite progressive regulatory movement from blockchain-friendly countries such as Malta and Thailand, ICO regulation is still relatively strict. The South Korean government has announced that it will maintain a blanket ban on ICOs after an FSS survey revealed evidence of Singapore-based ICO platforms marketing toward South Korean investors.
With hundreds of marketing agencies now focusing specifically on the ICO industry, maintaining marketing and token sale strategies that comply with country-specific regulatory practices is becoming increasingly important to new blockchain enterprises seeking to leverage token-based crowdfunding practices.