With the ICO hype of 2017 spilling into 2018, the beginning of the year saw ICOs raise the equivalent of a billion USD or more each month. The later months of the year, however, was a much different story. As investors grew cautious of scams and general excitement waned, the ICO market reached its lowest point ever from September to November.
Cryptocurrency critics have been quick to declare this the “death of ICOs”. While changes are definitely on the horizon for the ICO market, ICOs are far from dead. Here’s why:
1. The hype is over, but opportunity is not
There is truth to the idea that the massive success of ICOs in 2017 and early 2018 was due to hype. The novelty and innovation of ICOs had investors eager to get on board with the next big thing. And the potential to make massive returns very quickly fueled the fire even more.
Inevitably, not all ICOs delivered on their promises. Some were simply poorly planned and executed business ventures while some were genuine scams. Either way, investors lost money, and the get-in-now sentiment has faded.
But ICOs aren’t the first market to follow this pattern. The tech and dot com booms were spurred on by a similar sense of excitement. And, like ICOs, this initial craze was followed by a downturn as new businesses failed and investors learned to grow more careful about vetting the potential of the companies they trusted with their money.
Clearly, tech survived its downturn and is still an extremely profitable area for investment. Although the rush to invest in anything and everything was misguided, the industry’s potential to make money for investors was and is real. Just as it is with ICOs. So while the early heyday of ICOs might be over, what we should expect next is not the death of ICOs but the emergence of a more mature, less volatile market.
2. Startups are getting their act together
The potential to make millions quickly without giving up equity had a lot of startups turning to ICOs for fundraising. Unfortunately, the relatively easy money and the lack of regulations also brought in the scammers and the inexperienced entrepreneurs. It’s not an exaggeration to say that, for the most part, a decent white paper and a nice looking website was enough to earn a company significant money in investments.
From here on out, startups will probably have a much harder time getting investors–and that’s a good thing. Projects will have to do more to prove their value, meaning the good ones will stand out, and the scams will be easier to spot.
3. Investors are getting wiser
Startups won’t be the only ones putting in more work in the new ICO market. Investors are going to be a lot more cautious to avoid getting burned. They’ll demand more than marketing and half-baked white papers before they part with their money.
This due diligence will mean less success for the scams and the weaker projects. This, combined with the increased pressure on startups to prove their worth, will eventually result in a market that is far less volatile. Making millions in minutes might be harder in 2019, but the end result will be a more mature market with built-in self-regulation.
4. STOs are changing the game
One trend to watch in 2019 is the rise of security tokens offering or STOs. They’ve stirred excitement recently for their potential to solve some of the problems that come with the ICO market. Security tokens are different from other tokens in that they’re backed by tangible assets like real estate. Another huge difference? They’re regulated. Because they function as securities, they’ll face the same kind of regulations and laws as traditional securities.
While this might be a turn-off for some cryptoinvestors, the increased regulation of security tokens means less risk and will likely attract new investors who were previously too hesitant to touch cryptocurrency. Overall, we can expect that security tokens will help increase the overall reputation of the ICO market.
5. People are still investing
There’s no denying that numbers are way, way down from where they stood in early 2018. But even now, some new ICOs are still securing millions in funding in a single month. With startups doing more to show their value and investors making more careful decisions, a higher percentage of these investments will be profitable, which will slowly begin to repair the reputation of the ICO market.
As long as some people are still investing, the ICO market will continue to mature and refine itself, eventually regaining the trust and interest of a larger pool of investors.
Ultimately, no type of investment can live up to the hype that surrounded ICOs in 2017 and early 2018. Some kind of downturn was inevitable. Now, the natural self-regulation that arises out of a crash like this will help the ICO market regain its reputation and grow into a less volatile investing arena. As the market responds to demand for more secure investments, we’ll likely see the growth of STOs and other similar solutions.
The ICO is changing, and the market may never look quite the same again. But it’s far from dead.
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