A lot of companies today have turned to cryptocurrencies. That is despite the fact that some companies don’t really have anything new to offer, some companies have taken the ICO route in order to get more people to invest. And on some occasions, it does work.
In the past two years, the number of ICOs has flourished together with the popularity of the crypto market. Bitcoin almost reached $20,000 at some point in 2017. And just how big is ICOs today? According to a study, around $6.6 billion was raised by 217 ICO sales during the first quarter of 2018. It surpassed the $3.9 billion amount raised in the last quarter of 2017. It only goes to show that there is a growing popularity when it comes to the use of ICO as means to generate funds for a project.
Filled with Scams
However, it is important to note that ICOs are filled with scams. And for this reason, there are some countries that banned ICO activity. China is one of the earliest to implement a ban. Just how prevalent is this problem? According to a study made by Wall Street Journal, they discovered that around 19% of 1,450 ICOs, which raised around $1 billion in total, were questionable in nature. These ICOs raised red flags including fake executive teams to plagiarized documents.
Not All ICOs Are the Same
But of course, not all ICOs are the same. If you will look at the Ethereum project, it sold 60 million Ether coins in 2014 and was able to raise around 31,000 Bitcoin. And today, Ethereum is the second largest digital currency today next to Bitcoin.
But is it really worth it? According to Mangrove Capital, a company that is also known as an early investor in Skype, they performed an analysis and claims that if an investor had blindly invested in every possible ICO, even those companies that have failed, the investor would still end up getting profits. And it is 13.2 times that of your initial investment. Unfortunately, Mangrove didn’t disclose the number of ICOs that they have included in their study.
State Is Hunting Bogus ICOs
State regulators from both US and Canada are now doing a crackdown on crypto investment schemes. According to Joseph Rotunda who works as the director of enforcement at the Texas State Securities board, he mentioned that “the market for cryptocurrency investments is saturated with fraud, and our work is only revealing the tip of the iceberg”. The task force is led by the North American Securities Administrator Association. It includes 40 state and provincial regulators and they launched around 70 investigators.
This month, Texas regulators even sent a warning letter to UK-based BTCrush. Their claim is that it is violating securities laws and misleading investors via its marketing. The company published videos of mining farms. However, authorities found out that the videos were actually from publicly available stock footage.
These are some things that give the crypto market a bad name. Given the popularity of ICOs, there is a chance that bogus ICOs can victimize more people if authorities don’t act fast.