ICOs: What to Fear and What to Avoid

May 6, 2019   Ethereum

Despite having difficulties recently, ICOs in 2017 managed to help startups raise over 3.5 billion US Dollars in financing. This figure was doubled in 2018 – or maybe even tripled depending on where you get your numbers from. It can be murky in the ICO waters of today as there is no authority that has a 100% hold on how much money is raised, but what is known is that it is a lot - in the billions, definitely.

Are ICOs still worth it? What are the benefits? What are the drawbacks? Should you be wary of anything?

The good side of ICOs is beyond unbelievably good

It is generally accepted that ICOs are probably the best way to raise money for a fledgling business. Unlike an IPO, Venture Capital or a normal stock offering, you are not giving away a part of your business. That means all future value of the business stays in the founders' hands and whomever they explicitly decide to share it with.

It is much more efficient than debt incurred from a bank or other financial institution. There is no need to pay a monthly, quarterly or yearly amount in interest. There is no capital amount a company needs to pay back.

It is perfect because no upsides are shared and repayments are due. However, there are caveats.

Bad sides aplenty

A fledgling company that hinges its future on an ICO better have a very good idea to sell the customer. While a lot of ICOs have made a lot of money for the companies involved, not everyone does well. This might not have been a problem earlier in the life-cycle of ICOs as they were cheap to release, costing a few thousand overall.

These days the prices for the best companies can go well into hundreds of thousands, and that is before the exchange fees that can go up to 100 000 dollars. You could be looking at payments of close to a million dollars before you have a sold a single coin. If the ICO does not go according to plan, then the company would be in for a world of trouble before even getting started on the bright idea that sparked the startup in the first place.

IF you take into account that getting a successful ICO off the ground and the increasingly competitive market where modern ICOs find themselves... suddenly the appeal starts to lose a lot of its luster.

Regulations and cams rear their ugly heads

It is a worrying trend that many ICOs still look like scams. That's not to say that all bad ICOs are scams. Some of them just look that way because they do not show a good, comprehensive business plan.

ICOs also tend to attract a certain type of investor – the eponymous "get rich quick" type of investor. These are drawn to unregulated marketplaces like moths to a flame. The problem here is that ICOs are regulated, and they are regulated as securities, which can mean a heap of trouble if you do not follow regulations properly and those regulations are where investment banks made most of their money. They are difficult to understand, and even large businesses do not try and tackle the regulatory hurdles by themselves.

Adding on to regulatory burdens, both Google and Facebook have banned adverts for ICOs. When two of the largest online platforms have banned visibility for a method of financing that is, at its core, a community method… the community becomes smaller. That means fewer people are buying and less money in an ICO.

Author: Ali Raza for Crypto-Rating.com

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