The Price of Bitcoin Cratered in 2018 But Here’s Why ICOs and VC Funding to Crypto Is Breaking Records

The Price of Bitcoin Cratered in 2018. But Here's Why ICOs and VC Funding to Crypto Is Breaking Records

WAN CHAI, HONG KONG, HONG KONG ISLAND
A Bitcoin ATM machine in Wan Chai, Hong Kong.

The value of cryptocurrency poster child Bitcoin may be flagging heading into the second half of 2018, but excitement in the space only appears to be increasing—at least, when considering venture capital funding and initial coin offerings (ICOs) during the first half of 2018. Indeed—if 2017 was a windfall for Bitcoin owners, 2018 has so far been a nightmare. The cryptocurrency has shed roughly 50% in value since the new year and is now at about $7,400, far from its all-time high of $20,000 in December. Similarly, jobs listings related to Bitcoin and blockchain appear to have followed the ups and downs of the cryptocurrency’s price.

Amid the dark days for crypto enthusiasts, however, are signs that investors still believe that cryptocurrency trading will continue to grow, and are also betting on the future of its underlying technology—blockchain. Take venture capital funding that goes to early-stage, often highly risky, startups, as an example. Globally, venture investors poured in $964 million into blockchain or cryptocurrency-related startups in 2017. Now, not even half way through 2018, investors have already exceeded the prior year’s funding by plowing $1.4 billion into such startups.

Though cryptocurrency values have fallen 46% to $329 billion according to CoinMarketCap, venture capitalists such as David Pakman, a partner at Venrock, still think trading of such assets will rise in the long run. “There is so much institutional money waiting” for a properly regulated cryptocurrency exchange, said Pakman, whose firm struck a partnership recently with New York-based firm CoinFund, which helps entrepreneurs build startups using blockchain. “We’re not watching the price of the cryptocurrencies as a barometer of the health of the industry. We are wondering which projects will gain large market share, and what new problems they may solve.”

Much of those gains in venture capital funding have also been driven by investors who see promise in blockchain, a database held by multiple parties that updates in real time, says Nizar Tarhuni, associate director of research and analysis at PitchBook. Developers have looked into using blockchain to solve a host of problems, from tracking pork and diamonds to solving the refugee crisis. With increasing regulatory scrutiny on ICOs, which became popular in 2017 as a way for startups to raise funds more cheaply and quickly, some investors may also be looking instead to get into crypto by funding companies through more traditional means such as venture capital, says Andy Tang, managing director at Draper Dragon Fund.

“We see more investors investing in equity rather than tokens themselves. Because tokens are still a grey area in the U.S. Equities are not,” he said. That continued bullishness in the crypto space has led to the four largest venture capital deals in the industry yet, including a $133 million fundraise for Basis, a firm creating a coin with a set value, and $122 million to R3, an enterprise blockchain startup, according to PitchBook data. But here lies the paradox. Despite this increased regulatory scrutiny in nations such as the U.S. and China, fundraising from ICOs has only risen since last year.

The hot new thing of 2017, initial coin offerings were billed as a way to raise startup funding quickly, and cheaply—cutting out advisors and middlemen. But government officials have questioned issuers’ claims that some ICOs don’t involve equity stakes, and therefore are not subject to more onerous securities regulations. The U.S. Securities and Exchange Commission has recently cracked down on the space, while the Chinese government has sought to ban ICOs outright. Still, investors and ICO issuers have continued seemingly without concern in 2018. Investors have poured $9.2 billion year-to-date into ICOs, according to Coinschedule, into a total of 343 offerings so far. Notably, Coinschedule also includes pre-sales, such as that of secure messaging platform Telegram’s massive $1.7 billion raise. That dollar amount this year dwarfs what ICOs raised a year earlier: about $3.9 billion spread across 210 deals.

So who is investing in ICOs? Mostly investors outside of the U.S. and China, says Coinschedule CEO Alex Buelau, in countries with more ICO-friendly regulations. “Most ICOs now have a clause that you can’t be an American or a Chinese investor to be a part of this ICO,” he said. “So now ICOs are based out of Singapore, Estonia, Malta, or Gibraltar.” In some cases, governments, such as Venezuela, have even embraced cryptocurrency, with the country’s $735 million pre-sale of Petro coin, a digital currency pegged to the price of oil, now considered the second largest ICO of the year.

Less regulatory oversight though, may not always be a positive sign. Included in Coinschedule’s ICO figures may be fundraises by startups with shoddy track records, buoyed by investors who similarly, may not have enough experience to make such investment decisions. Meanwhile, the infrastructure to deal with hackers and scammers seeking to get a piece of ICO funds is still weak. During the anticipated $4 billion EOS ICO, which is set to conclude 7 p.m. Friday, some investors said they had fallen prey to phishing scams.

And there lies the flip side to the increasing funds moving into crypto. The bottom line for venture capitalists: Early stage companies are risky, and much of the dollars going in may never come out. “There’s high amounts of early stage speculation in cryptocurrency startups that could be really risky,” said Pakman. “And a bunch of those projects could never ship, or ship and end in failure.“

Article Produced By
The Ledger-Bitcoin

http://fortune.com/2018/06/01/bitcoin-price-ico-2018-record-billions/

 

How to avoid getting duped by a bogus initial coin offering

How to avoid getting duped by a bogus initial coin offering

  • 271 initial coin offerings have appeared so far in 2018, according to Coindesk. In 2017, there were 340.
  • In the last several years, investors have poured more than $12 billion into ICOs.
  • Red flags include promising high investment returns and accepting credit cards for investors to buy in.

"There's a real chance the [Securities and Exchange Commission] or another regulator won't be able to recover your investment, even in cases of fraud," said Lori Schock, director of the SEC's Office of Investor Education and Advocacy.

An ICO involves the sale of digital coins or tokens, which are typically used to fund a project that involves blockchain technology. In simple terms, this technology — which underlies bitcoin and its crypto brethren — ensures that all transactions using it are secure. Some ICOs are pitching either a new cryptocurrency (i.e., the next bitcoin wannabe) or could be exchangeable for one that is planned by the ICO's promoters. Others might give investors the right to use the coins toward a product or service that

will be offered.

"There's a real chance the [Securities and Exchange Commission] or another regulator won't be able to recover your investment, even in cases of fraud." -Lori Schock, Director of the SEC's Office of Investor Education and Advocacy

While not all of these digital assets are considered securities — regulators have said it depends on the specifics of each ICO — many meet the definition of a security and therefore are subject to U.S. securities laws. Already this year, 271 of these offerings have appeared, according to Coindesk. That's on top of more than 340 in 2017. In the last several years, investors have poured more than $12 billion into ICOs. However, the SEC says no ICOs have been registered to date.

Rather, the SEC's Cyber Unit — which has only been around since last September — has brought several fraud cases against operators of ICO offerings. Just this week, the agency announced that it has obtained a court order to shut down an alleged ICO scam that pulled in $21 million in investor money. In total, the SEC alleges $600 million has been raised in fraudulent schemes.

State securities regulators also have been busy. During the first three weeks of May alone, the North American Securities Administrators Association's "Operation Cryptosweep" resulted in nearly 70 inquiries and investigations and 35 pending or completed enforcement actions related to ICOs or cryptocurrencies. Additionally, other investigations into potentially fraudulent conduct are under way, and that's on top of more than a dozen enforcement actions previously undertaken by state regulators.

Even if a particular ICO is held with good intentions, there's no way of ensuring you'll ever see a return on your money. In fact, as is the case with any investment, you could lose all of it. Worse, you face the risk of criminals being behind the ICO and absconding with your money. And if the perpetrators are located overseas, the task of tracking down your investment could be impossible.

"The currency might be virtual, but the pain is real," Schock said. Both federal and state securities regulators have been engaged in public outreach to warn investors about the risks associated with ICOs and cryptocurrencies. The SEC even created its own bogus website to show investors what an ICO scam could look like.

Here are some of the big red flags to watch for.

Promise of huge returns

Generally speaking, investing comes with no promises. So if you're looking at an ICO that is pledging a certain return on your investment, you probably should walk away. "There are no guarantees when it comes to investing,"

Schock said. "A guaranteed return is a major red flag."

"There are no guarantees when it comes to investing. A guaranteed return is a major red flag." -Lori Schock, Director of the SEC's Office of Investor Education and Advocacy

 

Credit cards welcome

If you're invited to use your credit card to buy into the ICO, be very wary. Most licensed and registered investment firms don't let their clients use credit cards to buy investments or fund an account. Remember, too, credit card debt typically comes with interest charges if you can't pay off the balance immediately. So that investment could cost you more than anticipated. "If you don't have the money to buy it outright, you certainly can't afford to go into debt for it," Schock said.

 

The deal will disappear

Often, scammers will use high-pressure tactics to create a sense of urgency in the deal."Anything that pushes you to take action now, or discounts that disappear or countdown clocks … those are red flags of fraud," Schock said.

What else you should do

Even if the ICO's white paper — which details the investment and has become a standard with ICOs — looks legit and makes sense to you, don't let that be the end of your due diligence. Look into the people behind the offering. Scam ICOs have included pictures and bios of nonexistent workers. Make sure you can independently confirm that the executives listed are real people with credentials. Additionally, don't let a celebrity endorsement — real or fake — draw you in. The SEC has warned that it could involve a paid promotion, and that the person pitching the ICO might have little understanding of what they're recommending.

Article Produced By
Sarah O'Brien

Personal finance reporter

Sarah O'Brien reports for CNBC's personal finance team.
https://www.cnbc.com/2018/05/30/how-to-avoid-getting-duped-by-a-bogus-initial-coin-offering.html

 

South Korea’s National Assembly Makes Official Proposal to Lift ICO Ban

South Korea’s National Assembly Makes Official Proposal to Lift ICO Ban


Nearly eight months after a blanket ban on initial coin offerings (ICOs),
 
South Korea’s National Assembly has reportedly made an official recommendation to allow domestic ICOs in the country. According to a report by Business Korea on Tuesday, the 300-member national legislature has made an official proposal to allow domestic ICOs in the country by preparing and adhering to relevant investor protection provisions.

The National Assembly’s special committee on the fourth industrial revolution even accused the government of ‘neglecting its duty’ in responding to the blockchain sector, the report suggests. The much-publicized ICO bans by Korea and China before it has seen an exodus of domestic companies going to friendlier jurisdictions in Singapore and Switzerland to conduct ICOs.

Discussions on blockchain and ICOs between the National Assembly and the government will ‘accelerate’, the report suggests. More pointedly, the National Assembly has put forward a legislative and policy proposal to recommend allowing ICOs. The committee on the 4th industrial revolution also called on the government to form a task force comprising of both public officials and private experts to “improve transparency of cryptocurrency trading and establish a healthy trade order.”

It further stated:

“The administration also needs to consider setting up a new committee and building governance systems at its level in a bid to systematically make blockchain policy and efficiently provide industrial support. We will also establish a legal basis for cryptocurrency trading, including permission of ICOs, through the National Assembly Standing Committee.”

The legislative effort first came to light earlier this month when a group of lawmakers led by Rep. Hong Eui-rak of the Democratic Party of Korea – the ruling government – began drafting a bill to legalize the launch of new ICOs in the country. “The bill is aimed at legalizing ICOs under the government’s supervision[…],” he said at the time. “The primary goal (of the legislation is helping remove uncertainties facing blockchain-related businesses.”

The embracive turn follows recent remarks from the new chief of Korea’s financial watchdog who has chosen to put the spotlight on the “positive aspects” of cryptocurrencies while suggesting authorities will relax cryptocurrency curbs in what is among the world’s largest crypto trading markets.

Article Produced By
ICO News

https://www.ccn.com/south-koreas-national-assembly-makes-official-proposal-to-lift-ico-ban/