They’re the wave of the future for companies trying to raise capital quickly using digital cryptocurrency rather than traditional fiat. But initial coin offerings, also known as ICOs, are becoming so popular so fast that the concept is starting to look a whole lot like the dot com bubble of the late 1990s, some experts warn – and we all know how that turned out.
Over the past several years, ICOs have seen wild growth in many economic sectors because they’re unregulated, for one. This means that startup companies have a much smoother, red tape-less entry into the capital-raising phase of their growth and development. ICOs also function in a decentralized way, allowing companies to avoid the many pitfalls of central banking control.
With the exception of new rules and guidelines recently put forth by the U.S. Securities and Exchange Commission (SEC) that at least partially pull ICOs into the web of direct oversight by federal regulators, ICOs are the “wild west” of cryptocurrency capital ventures. This can be both a good and a bad thing – the bad being the way ICOs tend to attract greedy speculators like bees to honey.
While ICOs have the potential to allow for new economic growth with minimal barriers, many people are hopping on board the ICO train without even knowing what it is they’re getting themselves into. Just this year, there have been nearly 1,000 new cryptocurrency “coins” that have emerged via ICOs, and investors all around the world are ditching their day jobs in the hopes of striking it rich.
In cities as varied as New York, Hong Kong, and London, investors – some boasting seven-figure salaries – are calling it quits and throwing everything they have into ICOs. Many of them believe that it’s the best chance they have to ride the wave towards the next technology-enabled “revolution” in capital ventures.
“Loosely akin to IPOs, ICOs have raised millions from investors hoping to get in early on the next Bitcoin or ether, and their unchecked growth over the past year is such that they’ve drawn comparisons to the first ill-fated dot-com boom,” warns Lulu Yilun Chen, writing for Bloomberg.
“Yet with stratospheric bonuses largely a thing of the past, the allure of an incandescent new arena far from financial red-tape has proven irresistible to some.”
Investment bankers seeing dollar signs in ICOs aren’t remembering the dot com bust
Chen cites Richard Liu, a former dealmaker at Renaissance China, as one of the all-in ICO adopters who completely left the world of banking to pursue ICO success. He describes this departure as him climbing aboard a “rocket ship” that is destined for the stars – ICOs being the proverbial destination for ultimate financial success.
Among his new ventures is a $50 million hedge fund that’s reportedly invested in some 20 different ICOs this year, including a company known as Tezos that’s said to be one of the most successful ICOs in the industry’s very young history. Seeing the writing on the wall for his former industry, Liu is convinced that the potential wins far outweigh the dangers, including the possibility of an all-out crash.
“Traditional investment banks and VCs need to monitor this space closely (because) it could become very big,” the 30-year-old partner told Bloomberg, noting that Tezos’ cryptocurrency crowdfunding efforts have already outpaced that of the average Hong Kong IPO of similar size by a factor of nearly sevenfold.
“Unlike the traditional financial sector, there are no ceilings or barriers,” he added about what he sees as the benefits of ICOs, apparently unaware of what happened to the dot com boom not long after its meteoric rise. “There’s so much to imagine.”
Sources for this article include: