The Dilemma of Regulating ICOsNovember 11, 2017
The phenomena of initial coin offerings is one of those elements of the cryptocurrency market that really changed the entire ecosystem drastically at one point in time. When the ICO period came into its own, so did the ethereum network token blew up in price, creating a constant demand for additional ETH coins that could be invested in different startups, projects and companies. The same happened with the ICO domain where more and more offerings were either announced or completed.
But, at the same time, there was a strong underlying current which pointed to the volatility of the entire setup, along with the limited consumer protection mechanisms. The focus slowly shifted towards China as the nation that will most likely be the first to react to ICO, especially because so many were taking place in it. Soon enough the expected happened and the ICO were banned in China, declared an illegal method of fundraising that was no longer allowed.
In the wake of this, the ICO process along with its supporting elements, like ETH, all took a big hit. At the same time, other nations were eyeing their chance to do the same and place not only regulative caps on ICOs but often seeking a full ban on any and all offerings. However, the situation related to ICOs is not that easy or clear for anyone involved with the cryptocurrency market.
The decision of stopping the ICOs in China is a sound one, at least according to most technology and financial tech analysis. While some tried to pin this decision on the Chinese political system, insiders mainly agreed that this was something no country could tolerate for a long time. With a parallel system of raising capital, anyone could acquire millions in assets in a manner that is barely traceable or even not treatable at all.
At the same time, there was no vetting system in place that would determine what enterprise could do an ICO and which ones simply did not fulfill any basic requirements. In fact, there were no requirements at all. This opened the way to all manner of scams and deceptions, with some estimate placing their number to be higher than the actual valid ICOs. This could lead a big majority of the investors into a situation where they would lose all of their money in what was never a legitimate venture.
With this to worry about, China pulled the handbrake on the ICOs and stops them dead in their track in the summer of 2017. Immediately, the growth of ETC stopped as well and the cryptocurrency value began to slide back. Currently, China officials and regulators have no official moment when the ICO sales would return. Furthermore, it is not even revealing if it will do this.
But, at the same time, while all of the fears and problems related to ICOs are valid, so are their usefulness and the growing demand from investors. Events like the Unikrn show that reputable companies, this operating in the domain of cryptocurrency betting in the eSports field, are able to use offerings with great effectiveness. This makes the global fate of the ICOs anything but certain, regardless of the Chinese scenario and its eventual resolution.
Monetary Authority of Singapore Stance
MAS or the Monetary Authority of Singapore executive recently stated that the developments that have been following in regards to ICOs need to be a strong lesson for the regulators. While the organization put out a warning this year to its investors about ICO, it is not completely closed about the possibilities this process provides.
Yao Loong Ng, who is responsible for the MAS development of financial market strategy, said that many are rightly skeptical about the tech. However, he also said that the regulators must remain skeptical about their potential uses. In this sense, the skepticism means having an open mind about their potential usefulness further down the line.
For example, Ng showed that ICOs have a dynamic advantage over the IPOs, which usually take around nine months of work to become fully prepared. Instead, an ICO can take just days for the full setup and for the process to go live to the end users. This is why the same process is something that can provide regulators a lot of learning opportunities.
The comments were made in a panel discussion that took place at Kuala Lumpur’s ASEAN Capital Markets Conference. Just a week earlier, the Malaysia’s government and its regulators revealed they are working on a system of guidelines and regulations that can be used for setting up a sale of digital assets.
The Return of ICOs
Thinking that ICOs will return is not something that is rare these days, with more and more voices calling for the inclusion of sales of digital assets in the rest of the investment mechanism category, it is clear that regulators will need to act upon this pressure. But here, a huge conundrum lies that will be difficult to navigate for all involved parties.
Firstly, while having guidelines and rules about ICOs is the first step, the problem is that having fully vetted processes like this means having a fully vetted digital currency in a particular country. In this regard, the focus is not any potential government-made digital currency, but on those which are already in use around the world, including BTC and ETH.
Today, while there are some inside of governments, especially in the Western domain, who are calling for the acceptance and regulation of digital currencies, the majority from the political circles are still more preoccupied with potential problems than potential gains.
This makes the ICO regulation almost a paradox – they can be regulated when the digital currency is regulated as well. Since it is not, the potentially chaotic nature of ICOs will be used as another example why digital currency should be feared.
This puts the ICO in a position where they must be somehow regulated from within by the community. The same prospect probably sounds nightmarish to many individuals, but it is a necessary one. Without it, the return of the ICO will take more time and bring about equally sketchy results. To avoid this, the community must band together and somehow regulate or at least rate the ICO process and those companies who wish to embark on them.