Critics deride initial coin offerings (ICO) as get-rich quick schemes – perhaps this decade’s equivalent of the dot-com bubble.
But get-rich quick scheme or not, ICOs continue to soar in popularity, and the mainstream financial sector is calculating how it can get its slice of the pie.
A recent feature in Bloomberg Technology details numerous instances of financiers ditching well-paid careers to stake their claim in the burgeoning ICO empire.
Richard Liu, Bloomberg reports, left a seven-figure salary to join the Fintech Blockchain Group, a hedge fund that has already invested in 20 ICOs. Liu says ICOs are appealing because the potential windfall is not bound by the constraints of the traditional financial sector – only the imagination:
Unlike the traditional financial sector, there are no ceilings or barriers. There’s so much to imagine.
Another appeal of the ICO boom is the relative lack of regulation. The U.S. Securities and Exchange Commission (SEC) released a report suggesting ICO tokens could be subject to securities regulation, but thus far ICOs have managed to skirt by under the regulatory radar.
According to an analysis by Autonomous NEXT, ICOs have raised more than $1.2 billion in 2017 alone. That is a staggering number, especially considering that Ethereum – the platform upon which most of them are based – raised only $18.9 million during its 2014 ICO. Tezos, EOS, and Bancor each raised more than $150 million during their recent ICOs (The EOS ICO is ongoing); for comparison, the average 2017 Hong Kong Initial Public Offering (IPO) is just $31 million.
ICOs are controversial because they often launch with little more than a promise to develop an idea or service.
Consequently, they provide scammers with fertile soil (and hackers with a target). As bitcoin miner and angel investor Chandler Guo stated:
These ICOs are not selling shares, which means their investors will have to count on the promise and reliability of the founders … I don’t invest in any projects unless I know where they live and their mother lives.
It’s true that many – perhaps most – ICO projects are good-faith attempts to bring innovation to the digital currency space. But others have been guilty of preying on investors’ lack of due diligence.
Investors share the blame for not properly researching and assessing the risks of ICO contributions, but some ICOs have capitalized on this get-rich quick mentality. At least one ICO, for instance, has run a Facebook advertisement declaring that its token will be “The Next Bitcoin.”
Despite the impending regulation on the horizon, it is certain that ICOs will continue to function as digital gold mines, especially as bankers enter the picture.
There’s a fortune to be made. The question is: “By Who?”
Featured image from Shutterstock.