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Crypto/ICO

Why Are ICOs Jumping Ship?

Ofer Sharon
03 December, 2018
7 min read
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REPORT: More than 250,000 of ETH were sold by ICOs in the past 30 days.

The 2017 heydays for ICOs are gone. According to a new study by analytical company Diar, Initial Coin Offering projects (ICOs) sold more than 250,00 Ethereum (ETH) tokens during November alone. That’s the equivalent of more than $35M. ICO project captains withdrew and sold around 120,000 ETH from their Ethereum reserves, within seven days alone, with 82,000 ETH moved just on November 28.

The research by Diar also found that around 70 percent of ICOs are worth less now than what they raised in their original ICO funding. Another report, from ICORating, mentions signs of disappointment in the market in the ICO method and its risks.

Why this Matters

Hundreds of startups raised over $1B last year through the ICO funding method; many of them receiving millions of the public’s funds, specifically in Ethereum, due to how easy it is creating new coins based on the Ethereum platform. The recent data of the latest ICO cashout is a big red flag above the state of ICOs and perhaps the entire crypto union. The burning question is: what’s the cause of this exodus from the ICO scene?

BLOCKTV spoke to the directors of companies currently holding ICOs as their means of funding.

"The decline in prices has reduced funding. There’s a general feeling of skepticism in the market," said Lasse Balzer, CFO of Whisky Token.

"There’s a general feeling of skepticism in the market."

Lasse Balzer, CFO of Whisky Token
They Will Not Break Us

Some are still trying to remain optimistic regardless of hard times. "It may not be the best time to run an ICO, yet we’re still on the track with our roadmap," Cem Unsal, co-founder and CEO of Corld told BLOCKTV. "Our level of enthusiasm has not changed at all. We are currently continuing our Token Distribution Event," Unsal said.

"It may not be the best time to run an ICO, yet we’re still on the track with our roadmap."

Cem Unsal, Corld Co-Founder and CEO
Cem Unsal, Corld Co-Founder and CEO. Courtesy.

Cem Unsal, Corld Co-Founder and CEO. Courtesy.

The Times, They are a-Changing

Is it the general market capitulation that is having its impact on the ICO scene as part of the entire cryptosphere?

These are different times than when ICOs were popping up like mushrooms showered with the rain of millions of investors’ dollars, even though some were not backed by any functional product of substance or real value. Many of the fundraising efforts were blatant fraud attempts, exploiting the ICO gold rush of naive investors, raising millions without having to conform to any standard of presenting organized business plans.

There’s a New Sheriff in Town

The past weeks have seen a hard crackdown on fraudulent ICOs from the U.S. financial authorities.

 

The Securities and Exchange Commission (SEC) recently pressed charges against ICOs brought under fire for failure to properly comply with federal securities laws.

"We have made it clear that companies that issue securities through ICOs are required to comply with rules governing the registration of securities."

Stephanie Avakian, Co-Director of the SEC’s Enforcement Division

While Ohio recently earned its respect in the crypto community as the first state to officially accept Bitcoin, in other regions of the country, the winds are blowing in a different direction. More and more states are starting to chase after ICO scams. From Colorado, where 20 ICOs have recently been charged with fraud, to North Dakota and Massachusetts, ICO scammers are beginning to run out of places to hide. But the worst state for the average ICO scammer to be is probably Texas. The Texas Securities regulator, in a state-wide sweep, launched hundreds of investigations of cryptocurrency scams and prosecuted and eliminated many.

"Operation Cryptosweep" was one of the largest coordinated series of enforcement actions by state and provincial securities regulators in the United States to crack down on fraudulent ICOs. It resulted in more than 200 investigations of ICOs and more than 50 enforcement actions.

Overall, the force of the crackdown against ICO frauds from the American government almost resembles the battle on drug trafficking or organized crime. It seems that the establishment has finally had enough of this wild west of ICOs. Perhaps it has learnt the lesson from the infamous CDOs bubble related to the 2008 financial crisis.

There’s Nowhere to Run to

But if one thought that the common scammer could flee the country to continue their fraudulent ICO operations from elsewhere around the world, they would have to think again. Only this week, the founders of Pure Bit, a Korean ICO which turned into an exit scam, were found guilty of running off with almost $2M worth of Ethereum.

So, is the hardening of regulation and enforcement against ICO scams the reason behind the data regarding gradual capitulation of ICO revenues? Are these merely frauds cashing out their cryptos before the man catches them too?

Don’t Venture All your Eggs in One Basket

We asked our ICO captains how they were strategically reacting to the current market reputation for ICO projects. It seems that a good strategy would be not to rely too much on any single funding method, let alone one so mistrusted as the ICO method.
 

"The current market outlook indeed affected us too. Hence, we’re always looking for ways to adapt the circumstances and diversify our funding strategies," Cem Unsal of Corld said, "so we do not need to consider a radical shift in our goals and plans [...] Our Token Distribution Event is only a part of our process. Our roadmap goes way beyond the ICO and it includes many milestones in the long run to get our project up and running."
 

"The latest developments made us more eager to focus on the community level and we are trying to get our message to the people out there [...] We are in talks with both the crypto-investor community and institutional investors all around the world."

Cem Unsal, Corld Co-Founder and CEO
Yo Ho Ho and a Bottle of Whiskey

As it turns out, some can actually benefit from the supposed grim state of affairs, turning lemons into... whiskey.

"We can actually observe more and more real money flowing into the market again. Investors want to use the favorable prices as a way of re-entering the market," CFO of Whiskey Token Lasse Balzer told BLOCKTV.

The Glass is Half Full

Whatever the exact reason for the ICOs fall from their dubious glory days of 2017, there still might be room for some optimism. The tightening of regulations and enforcement could do some good for the crypto industry. From elimination of bad actors operating scams to protecting investors, and improving the reputation towards the entire ICO scene, the consequences could be good for businesses operating legitimate ICO projects.

"Projects are analyzed in more detail and there is no 'blind' investment in every ICO. I think this is very positive," Balzer said. "Of course it makes the acquisition of funds more difficult and you have to offer more to your investors, but on the other hand you also get investors who are really interested in the project. Thus we see a professionalization of the whole community."

"Projects are analyzed in more detail and there is no more 'blind' investment [...] You have to offer more to your investors [...] We see a professionalization of the whole community."

Lasse Balzer, CFO of Whiskey Token
Fake News? This is the Full Picture...

Important to also note that there have been claims that the narrative of ICOs cashing out their ETH is not completely accurate. A recent report from crypto analyst Marat Garafutdinov of HASH CIB claims that ICOs actually have not liquidated their ETH. Garafutdinov claims that out of the entire ETH moved, only $8M worth of ICO’s ETH directly hit exchanges. According to their analysis, most ICOs are still holding the majority of the ETH raised from their token sale.

What to Make of it All?

However significant the ICO ETH cash out ends up being, no one can deny this is a bad time for ICOs. 

 

BLOCKTV will be here to see it crash and burn or rise from the ashes –perhaps reincarnated as STOs…

 

In the meantime, tell us what you think. Are ICOs here to stay?

WHISKY TOKEN GmbH (WHY) combines high-end whisky with blockchain technology to form an asset-backed high-end whisky portfolio as security. It is ERC-20 Ethereum based. Currently priced at 1.2 EUR, their ICO is planned to start December 1.

 

Corld hopes to disrupt traditional social networks who exploit their users’ personal data as commodities, based on their platform’s model of tokenizing content creation and sharing via their Cedium token.

SEC ICOs BLOCKTV crypto regulation SCAMS