The first quarter of 2018 has been quite a dramatic period in the life of blockchain and cryptocurrencies. While we see a continuous drop in the price of Bitcoin and altcoins in general, with most tokens trading even below their ICO prices, there has been no relenting in the amount of money raised during this period.
The end of February saw crowdfunding ventures raise over $1 Billion dollars for the third month running. Of the billions raised this year, $788 million has come from projects based in the U.S., $265 million from China, and $249 million from Lithuania. Switzerland, Europe’s crowdsale heartland, is fourth with $249 million. The above figures reveal that there is a reasonable spread in the way these funds are raised, portraying a somewhat balanced ecosystem.
Despite the political and institutional resistances faced by the cryptocurrency ecosystem, with specific attention paid to ICOs, this stable upward trend that is observed raises some curiosity. Questions about the fundamental indices behind the rising trend if ICO expansion abound as well as the sustainability of current behaviour of the industry.
Overall Quality of ICOs
The Founder of LKI Consulting, a PR firm that has handled several ICOs especially in the last couple of months, Laura Kornelija Inamedinova believes that the reason for this ICO trend must be related to the increase in the overall quality of ICOs. She recalls the situation which existed in this industry around six months ago, where probably anyone could announce an ICO, as basically all what people needed was a nice and attractive idea and technological mindset or competence in business and digital innovations were considered as the second-tier subjects.
Inamedinova explains that time has shown that on the contrary, these aspects are the most important in order to have a successful ICO. Therefore, the increase in the number of high-quality and well-developed projects contributes to the growing confidence of investors.
Although in general the ICO market has boomed and recorded impressive figures, there are a good number of projects that have not succeeded in achieving there set-out objective, hence are regarded as unsuccessful. Inamedinova identifies knowledge and communication as the major factors that determines how successful a project can be.
Inamedinova tells CCN:
“A successful ICO definitely requires the team which has an excellent knowledge in business and tech. On the other hand, communication is still a bit underrated, but it is as important as the understanding of particular industries. A good communication strategy always helps in displaying the best features of your project, as well as in attracting more people through creative campaigns. Also, the way that team members communicate with investors can tell a lot about the reliability of any ICO. The unsuccessful ones tend to be vague and even rude, what obviously indicates a quite flawed strategy.”
The first major wave of announcing ICOs started in the summer of 2017. Regarding the nature of these projects, the first results will be visible in a year or two after the fundraising process, hence this could be between six to eighteen months from the time of writing. It will not be a surprise that most of the projects can fail (unfortunately, it is a pretty usual thing in the world of startups and innovations) and the mass disappointment will grow. However it turns out, interested people will not stop establishing new projects which will be significantly improved and definitely more successful. Eventually, blockchain technology will be expected to become massively applied not only in ICOs, but startups, corporations and even public sector would eventually adapt and widely use it due to safety and convenience.
Looking Beyond the Figures
Cashaa founder Kumar Gaurav thinks that the industry should look beyond just the crowdfunding exercise carried out by a lot of projects at the moment in terms of ICO. Gaurav, whose company turned down over $14 million of the $33 million raised in an ICO due to compliance reasons identifies a lot of irregularities in the public perception of true substance of crowdfunding.
One trend identified by Gaurav is the recycling of investors and investments within the ecosystem which seems to bloat the industry beyond its true capacity. He notes that the practice by most investors is to sell older tokens, buy new ones, cash out the profit and move on to the next. This is possible because of the highly competitive market which is flooded by all kinds of project. The competition leads to high bonus promises, therefore even when the value seems to drop, the over-bloated bonuses sustains profit for investors. The question is for how long can such a system be sustained?
Another problem identified by Gaurav is that ICOs are attracting many investors from outside the industry who are only interested in their own profit and not necessarily in the technology or in supporting a particular company. Also, there are many beginners who are genuinely interested, but are only starting to learn and may be scared about market uncertainties, therefore are selling-off more easily. The current situation may create difficult situations in the long term for a company having raised funds via ICO and relying on both their raised Bitcoin and Ether, as well as their own token price going up.
A Complex Setup
The above description reveals that a lot of ICO investors are merely speculators who may be in for just the short term. This makes it a bit complicated for project builders and developers in implementing their plans and objectives effectively. According to Gaurav, to get to this point in the first place, exactly the money coming from these more ‘difficult’ groups of people is needed to keep the amounts raised in ICOs high, as the investor landscape has become broad and only trying to raise from the original, long term involved groups of ICO investors coming from the blockchain industry is not enough.
At this point the question of what criteria is applied in determining the success of an ICO arises. It is common these days to classify an ICO as successful depending on the amount raised during the crowdfunding process as compared to achieving such by using traditional fundraising methods. However, when looking at their own definition of success, which was usually defined by the hard cap, until the majority of ICOs did not even reach two thirds of this number any more. Then, to prevent being seen as a failure, companies started to intentionally set lower goals. Hence, Gaurav explains that to decide what is a successful ICO, we also need to look at what happens to the company after a year and more.
“Almost half of 2017`s ICOs have already disappeared, with some not having raised enough or having run away directly, but the majority having disappeared quietly, with a further group having stopped communicating and having a negligible community size and therefore a likely chance to fail. This amounts to an overall around 60 % of ICOs which actually need to be seen as a failure already”, says Gaurav.
Having a Long-term Perspective
So instead of looking at impressive numbers, we may need to watch the long term activity such as product building and community engagement of the company to be able to judge whether it is a successful ICO or not.
One criteria is how long the company and if possible, their product, have been in existence, with the above mentioned one year already making a difference. In any case, especially if the company has existed less than a year, it is important that the team consists of people who are known, long-term involved in the industry, and have a successful track record.
The complexities that exist in the ICO ecosystem as already described may be considered as a normal occurrence in the developmental stages of any new innovation. However, in the coming years and once the hype is gone, as the different ways of fundraising have both their advantages and disadvantages, we may see a more stable industry and the amounts raised in ICOs will become close to, or even equivalent to the amounts raised on the traditional way, but with its own peculiar implementation benefits.