The Wall Street Journal just reported that nearly 20% of all ICOs or Initial Coin Offerings raised “red flags.” The report detailed some of the questionable methods including using fake profiles of company members and copying the white papers of other ICOs. The report also mentions that nearly $300 Million has already been lost to scam ICOs.
This is sad since the ICO was to be the great equalizer for the retail investor. A way for businesses to raise capital directly from the public. No need for Investment Banking or the dealing with Venture Capital firms. The ICO mess is hurting the cryptocurrency markets and probably one of the reasons the markets are where they are now.
We should have seen this coming when after the Binary Options scammers were shut down they went on to the next thing and ICOs were the perfect fit. Now the public is losing confidence and regulators are scrambling to figure out how to get things under control.
One of the problems facing regulators is the classification of an ICO. The SEC or Securities and Exchange Commission has indicated that if an ICO resembles a security, it will be treated as one. Some ICOs have been trying to classify themselves as a product or service and skirting the securities classification. He stance taken by the SEC seems to have worked as many of the newer ICOs are not being offered in the US to avoid any potential problems.
Regulations seem to be the obvious solution, but that could take time, and there are the issues of numerous jurisdictions. The ICO is very much a web community product, and the promotion of these are typically done through websites and blogs. The ICO community needs to flag and identify the bad actors. ICO websites need to do their due diligence on the members and the business. For the public, these sites are often the only source of information.
The Crypto Exchanges also need to play a part and need to set standards for any ICO that wants to be listed on their exchange. The NYSE and NASDAQ have listing requirements, and this too should be the case cryptocurrencies. If the exchanges refuse to register questionable ICOs that do not meet their standards, this will bring back confidence to the cryptocurrency market.