What’s Wrong With Crypto

Is there something wrong with crypto?

In the current ICO frenzy, it’s easy to forget that just over a year ago, ICOs were virtually unknown to the general public. They were almost exclusively in the domain of computer geeks.

By the end of 2015, there were a total of 17 ICOs launched, with $45 million raised between them.

Only one year later, by December 2016, that number had gone up substantially to 62 ICOs and $318 million raised.

This however pales in comparison to $6.4 billion raised by ICOs by the end of November 2017, with the number of new ICOs growing exponentially each month.

In October and November 2017, ICOs raised more than $1.3 billion per month. That is considerably more than $300 million per month raised by startups from traditional early stage angel and venture capital funds.

Additionally, the rate of new ICO launches is still increasing each month. With September, October and November 2017 seeing 81, 112 and 148 new ICOs launched respectively.

The video below illustrates the growing number of new ICOs.

So what is going on here? Why are more and more ICOs popping up each month and where is this all leading to?

The problem lies in the completely unregulated nature of ICO launches. And the virtually non-existent barrier to entry to both issuers and investors.

With the blockchain technology rapidly evolving, there are now YouTube videos available on-line. They teach you how to launch your own cryptocurrency and/or ICO in about 5 minutes.

On the other side, anyone with an on-line Ethereum wallet; which can be created for free in literally a few seconds; can invest in any Ethereum based ICO token sale (which is the vast majority at the moment).

This has created the perfect environment for the ICO feeding frenzy that we see today, and the regulators are starting to take notice. Both China and South Korea have significantly stepped up regulations in 2017 and will continue to do so this year.

The SEC in US have also started shutting down individual ICOs. They are accusing them of representing unregistered securities offerings and resulting in most ICOs not allowing American citizen to invest.

The UK regulators have also been keeping a very close eye on this space and it’s probably only a matter of time, before they bring in some form of regulation as well.

What’s making the regulators nervous, is that it has become simply too easy to raise too high sums of money, based on nothing more than a flashy website and a big promise in the white paper. And without virtually any accountability. And that’s before these tokens hit the exchanges, where their value usually balloons exponentially as early investors take advantage or the preferential pricing they received; leaving new investors exposed to even greater financial risk. The total market cap of crypto-currencies available on exchanges is very quickly approaching $1 trillion.

So can anything be done to mitigate the investor risk?

At this stage, the crypto ecosystem urgently needs to setup some kind of self regulating system or prepare to face the full brunt of draconian, government imposed regulation.

What is required is something similar to what we see with traditional stocks; where publicly listed companies are required to issue audited quarterly and annual financial reports to their stock holders, for which they are legally liable.

A good first step would be to setup some kind of a blockchain database, that would act as a depository for certified financial reports; which would bring much needed transparency and accountability to the crypto ecosystem.

If we fail to do this, we face the risk of massive government intervention and/or a financial bubble the likes of which this world has never seen before.