15 Feb 2019
After cryptocurrencies exploded in 2017, the same amount of attention was given to Initial Coin Offerings (ICOs). It was not long before the US SEC took an interest in the phenomenon, although they were not looking at it lightly. In fact, many would argue that the regulator's response was quite harsh, not only regarding ICOs but the entire crypto market, as they basically said that most altcoins are securities.
While ICOs went big in 2017, they originally appeared four years earlier, in 2013. Since then, numerous coins that are on the top of the crypto list have been launched, including the likes of Stellar (XLM), and even Ethereum (ETH). Then came 2017, and the growth in Bitcoin's price affected the entire market, which surged to entirely new heights. Countless startups realized that holding an ICO might be a way for them to quickly get funding for their projects, and they started emerging all over the world.
However, the trend also attracted criminals who realized that it would be easy to scam new investors out of their money, and within months, the ICO trend started losing the investors' trust. The market crash in early 2018 took down the prices of most coins, and all of a sudden, no one was willing to invest in just about any project that emerges anymore.
Back in mid-2017, the SEC decided to investigate the DAO project, and after the investigation was complete, the regulator was not satisfied with their findings. They issued a warning to ICO issuers and investors alike, pointing out that securities laws may be applied to some of the ICOs. According to their report, all tokens that promised large returns are to be considered securities, instead of utilities, as the startups tended to announce them as.
The SEC's involvement was seen as a good thing at the time, as many believed that the regulator might clear the space of scammers. However, a lot of investors still wanted to invest in these so-called securities, as that was the only way for them to get rich quick. When this didn't happen, they went back to the SEC with complaints, and the SEC took action.
The regulator's Chair Jay Clayton announced that basically every altcoin out there was a security, with Ethereum being the only recognized exception apart from Bitcoin itself.
Now, the Canadian messaging firm, Kik, has something to say about the situation, particularly when it comes to their own token, Kin.
When Kin first appeared, it appeared like there were no problems with the SEC, and it all ended after a few simple questions. Over time, however, the SEC became more harsh towards cryptocurrencies, and they eventually issued a Wells notice, stating that they believe that the token might belong in the securities category.
Kik defended the project, stating that the coin was announced as a currency and that it is being used as one, meaning that it cannot be a security. While the internet mocked this, some of the Kik's points remain, and even if their coin's price grew in late 2017 (pretty much no coin managed to avoid that), that does not make it a security.
The future of ICOs may not even be worth discussing for some investors and analysts, as there are many out there who believe ICOs to be dead. However, this may not be the case, and there is also a strong belief that the ICO model simply lost popularity and trust, but that it is still around.
Meanwhile, a new trend is taking off, which is openly admitting that tokens are securities, and selling them as such in STOs. Some even view STOs as spiritual successors to ICOs, and potentially the next step in token sales. In a way, that would mean that ICOs are not dead, but that they evolved into STOs.
While there are still some examples of ICOs that can be found today, there are a lot more security token offerings around than initial coin offerings. As for the future, the ICO model might perish after a while, if the STO trend takes off as it appears to be doing. Since it is a valid and regulatory-friendly alternative, it is unlikely that a lot of companies will attempt to pass their security on as a utility in the future, meaning that the real utilities might be the only coins that will ever be sold in ICOs.
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