Is the Bear Market Heavily Affecting ICOs?

The year 2018 has been a bloodbath for the cryptoverse with Bitcoin’s market price reduced to almost a quarter of its all-time high last December 2017. Major altcoins like XRP, ETH, LTC, etc. also followed the same downward trajectory. Meanwhile, the SEC and other government agencies all over the world have cracked down on ICOs—the new cryptocurrencies being offered on the market to normal investors. This is aggravated by the fact that there is no standard classification/definition of cryptocurrencies in regulatory framework.

With all these challenges the industry is facing this year you’d think that retail investors would shy away from ICOs or that ICO funding would decline. The former may or may not be true but the latter definitely isn’t.

According to Wall Street Journal, Initial offerings raised $11.8 billion this year through May, more than double of last year’s total funds raised--$5.5 billion. However, it needs to be noted that a handful of ICOs amount to a big portion of this year’s funding total.

The founders of the popular encrypted messaging app Telegram, the Telegram Group, raised $1.7 billion dollars last June. On the same month, Block.one raised an estimated $4 billion for EOS. Nevertheless, the ICO funds raised in the first half 2018 surpasses the entire funds in 2017.

Despite the SEC crackdown on “unregulated assets”, an increasing number of startups bypass this by offering only to accredited investors/venture capital firms. Majority of funds are now flowing to these private offerings instead of public ones. This allowed ICOs to raise billions of dollars in the face of the 2018 crypto bear market.

Kyle Samani, co-founder of Multicoin Capital, said “The public markets are basically dead. The private market is going to be hot for a while.”

The move towards private markets will add to a “normalisation” of the ICO market, said Bart Stephen, co-founder of crypto venture fund Blockchain Capital. ICOs are now moving toward a more transparent and regulation-friendly approach.

This is quite concerning for normal investors since ICOs are becoming more like regular tech startups. For some this is a good thing but a lot of people believe that opportunity should be given to everybody equally and not just the big players. Furthermore, there is the almost inevitable risk that privately-funded ICOs would be heavily centralized—having a few wealthy investors controlling it. Regular investors might be discouraged to even touch such crypto that goes against the principles of decentralization—which means a lot to the crypto community. This might hurt a startup long-term as eventually they will need regular users/investors to use their token.

As of now, there seems to be no evidence that ICO public offerings are “dead” even in this bear market. Furthermore, “there is no statistical significance in the average ICO performance in either a bull or bear market,” according to an analysis conducted by a data science team Lunar Digital Assets. There tends to be more ICOs that underperform than ones that do perform well regardless of the market conditions. ICOs, on average, don’t perform as well as more established coins like Monero, NEO, DASH, and Ethereum.

Those who are planning to raise funds through an ICO should not focus on timing the market. Instead, they should focus more on the actual product, the whitepaper, the marketing strategy, the future roadmap, and building a community.