Are ICOs Finished? Here are 5 Drivers of Revival in the ICO Market
Many believe ICOs are declining in popularity and while the overall market trend may be to blame, this post discusses 5 drivers of revival in the space.
Every day more and more pessimistic forecasts regarding the state of the crypto industry are appearing online. Experts indicate various reasons for this: startups holding ICOs do not have finished products, growth in crypto crime, and a strengthening of state regulation. However, the crypto world has no intention of giving up that easily. The ICO market is also standing its ground.
If you take a closer look at the situation, however, you will see that the talk of the impending demise of cryptocurrencies is vastly exaggerated.
The market is transitioning to a new phase of development
According to data from the IBRC (ICOBox Blockchain Research Center), since the start of the year cryptocurrency market capitalization has fallen nearly threefold, from $768 billion to $254 billion. However, when compared to the start of August of last year, market capitalization has doubled, which is clearly at odds with assertions on its imminent ruin.
Moreover, if you look at the activity of backers on the ICO market, the trend here is even more positive. According to the calculations of tokendata.io, blockchain startups held 435 ICOs last year, and $5.6 billion was collected. As reported by the British website coinschedule.com, by the beginning of August of this year backers had participated in 706 ICOs and purchased tokens worth nearly $18 billion. This turn of events bears little resemblance to a weakening of the financing trend.
IBRC analysts point to clear evidence of a new phase of development in the cryptocurrency market and ICO projects. The number of major backers ready to provide significant resources to projects is growing. For example, according to the estimates of the international consulting firm PwC by early July of this year the average amount collected per ICO increased to $25.5 million, which is twice the figure for 2017.
According to Nick Evdokimov, an international expert on the cryptocurrency market and the founder of ICOBox, the ICO market is far from exhausting its potential.
“We are at a very early stage of development, so it is laughable to say that the ship has sailed, or that the purchase of tokens is not as advantageous. On the contrary, this is only the beginning,” remarked Evdokimov.
The growing interest of traditional financial institutions in the cryptocurrency market
According to Evdokimov, the increase in the number of traditional financial institutions participating in the development of the cryptocurrency market is obviously also a positive sign. Goldman Sachs’ recent announcement of the formation of a division for trading cryptocurrencies and its plans to launch a depositary service for the storage of tokens for institutional backers is direct confirmation of this trend.
The creation of federally regulated sites for trading in bitcoin futures
An even more serious event took place on this market on August 3, when the Intercontinental Exchange (ICE), the world’s largest trading floor for financial instruments, announced the creation of the joint venture Bakkt. In November of this year, Bakkt will provide traders with a “federally regulated” platform for trade in bitcoin futures and a depositary service for cryptocurrency assets.
ICE’s partners in this venture are the transnational corporations Microsoft, Boston Consulting Group, Starbucks, leading hedge funds, venture capital funds, and funds specializing in cryptocurrency projects such as Pantera Capital and Protocol Ventures. Although Starbucks immediately announced that their “Frappuccino® cannot be directly purchased for bitcoins,” for all intents and purposes the cryptocurrency will be accepted for payment after conversion into US dollars on the Bakkt platform using a special app that is being developed by Starbucks.
Crypto assets are starting to be used as an investment vehicle
However, the decision of the US Securities and Exchange Commission (SEC) to list the first bitcoin exchange traded fund (ETF) on the Chicago Board Options Exchange (CBOE) could perhaps have the most tangible effect, at least in the short and medium term. According to some estimates, this decision is expected as early as September, and many analysts believe that the decision could very well be favorable. If this happens, the fund will be traded on an exchange that is completely under the supervision of US financial regulators. It was the lack of such supervision which served as grounds for the SEC’s refusal to list a similar ETF in late July 2018.
The appearance of this fund on the market would probably give a powerful boost to the development and use of crypto assets as an investment vehicle. After all, at present retirement funds and insurance companies, key institutional investors, due to the regulations do not have the right to place their money in cryptoassets. Therefore, a favorable decision by the SEC would open the door for billions in potential financing and give startups an even stronger impetus to enter the ICO market and issue their own tokens.
Interaction between startups and funds and the switch to widespread use of security tokens
Specialists believe that the work of startups with funds is the most effective way to diversify the financing base and ensure the widest possible recognition of tokens by retail traders. To this end, the tokens to be offered to backers must be clearly defined as either utility tokens, required for the purchase of the startup’s products or services and not subject to regulation, or as security tokens. In the latter case, they will be subject to oversight by financial regulators, which will make them legitimate in the eyes of institutional backers.
“More and more ICOs are appearing that structure their tokens as security tokens under US regulation and working with accredited backers internationally,” adds Nick Evdokimov.
He also recommends that backers consider the possibility of working with the ICOs of a successful startup through funds.
“The fund enters the startup as a wholesale token purchaser and receives a good price. If it takes this decision independently, it means that it has done its own internal scoring, thereby saving the backer some effort. The fund can come to an agreement with the startup on absolutely unique terms, such as risk hedging or the performance of mixed transactions with the funds collected. So, pay attention to which funds have joined with the startup, and if you can get involved through a fund instead of directly, don’t miss your chance,” recommends the market expert.