Cryptocurrencies have plunged in recent months from the all-time highs they reached last year, with bitcoin losing 45% from its December peak. However, that hasn’t deterred investors from piling their money into one crypto-based fundraising method.
Citing research and data from Token Report, the Wall Street Journal has reported that ICOs have already exceeded US$1.66 billion this year. With 480 launched in 2018 so far and only 126 closing to new funds, the market is on track to beat 2017’s record of US$6.5 billion.
Token Report’s fundraising tally includes only closed offerings, which means it excludes those from Telegram Group and block.one, which together have amassed more than US$2 billion.
While Telegram and block.one have announced plans to use the funds they raised for expansion, not all ICO-based capital is likely to be put to good use. As noted in a recent report by consulting firm EY, many of the firms launching ICOs have no working product or service yet. And in many cases, tokens don’t confer any stakes in the issuing companies; instead, they represent an ability to buy a company’s product or service when — or if — it gets off the ground.
Still, many opportunistic and speculative investors are rushing in, much to regulators’ concern. Following efforts by the US Securities and Exchange Commission (SEC) to step in, the Commodity Futures Trading Commission (CFTC) has issued a customer advisory warning against “pump-and-dump” schemes and offered whistle-blowers rewards in cases of successful enforcement actions.
The spate of crackdowns appears to have created a bifurcated market where small ICOs struggle to reach their fundraising goals. EY has found that less than 25% of the ICOs in November 2017 hit their targets, compared to 93% in June. The fact that most projects are just in the planning stages, with more than a year required before an actual product is launched, can also make valuing ICOs challenging.
“Current token valuation is more like a gold valuation or a fashion item in high season when a limited supply cannot meet high demand,” researchers at EY said in a paper.