Initial Coin Offering (ICO) funding rapidly accelerated in 2017 to a peak of USD 2.432 billion per month at the beginning of 2018 according to a report by Autonomous Research, but has crashed 90% in 2018 so far, only pulling in USD 279 million during September 2018. Autonomous Research proposes that this rapid collapse in ICO funding is due to new security regulations regarding ICOs, investors preferring equity over tokens, and the collapse of the Chinese crypto market.
ICOs have been around for years before 2017 but were pulling in relatively low amounts of money per month, generally less than USD 20 million per month through April 2017. Then, businesses and investors began to recognize ICOs as a novel new way to raise funds to start businesses, in a relatively regulation-free manner that allowed rapid influx of funds without the normal headaches associated with issuing equity.
ICO funding per month ticked up to USD 228 million per month by May 2017, before rapidly accelerating to USD 645 million per month by June 2017. ICO funding exceeded the USD 1 billion per month mark for the first time in October 2017, as a major crypto-wide rally began. ICO funding rapidly accelerated to a peak of USD 2.432 billion in January 2018.
Since then, ICOs have been declining month over month, to the current level of USD 279 million in September 2018. This is still far above what it was before ICO funding began to rally but 90% below peak levels.
The biggest factor probably causing this decline is that ICOs have essentially become illegal in the United States. The Securities and Exchange Commission (SEC) considers ICOs to be securities, since investors buy the tokens for profits, and the money used to buy the tokens goes to a centralized company. Thus, ICOs are only allowed if they get SEC approval and as of now, there is no word if any companies at all have been approved by the SEC to do an ICO. In the United States, the days are gone where someone with a good idea could exchange tokens for money to raise funding for a new company.
Apparently, investors have come to prefer receiving equity in a company, i.e. stocks, versus tokens that don’t necessarily represent any form of equity. This is a return to the old style of investment, and is perhaps not surprising considering the rising storm in the ICO market caused by SEC regulation and lawsuits. Investors prefer contractual stocks, versus a token which is not guaranteed to have any value. Further, many ICOs have followed the classic crypto pump and dump pattern, leaving many investors burned. Exchanging investments for percentages of future company profits is simply more secure for investors in many cases.
In China, the situation is similar to the United States regarding ICOs, with ICOs now being illegal. It might be even worse, since there is no avenue given for any ICO to ever be conducted in China, unlike the United States where ICOs could theoretically operate if they get SEC approval. The Chinese crypto market was huge and apparently large amounts of ICO investment came from there, and now Chinese investment has slowed to a trickle.
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