September was a Horrible Month for Initial Coin Offerings
Initial Coin Offerings (ICOs) were one of the biggest industries to come out of 2016 and 2017. The process of crowdfunding is really nothing new, but the use of blockchain and cryptocurrency technology to facilitate the funding process gave startup companies on the blockchain a whole new set of tools to help to fund and start their unique businesses. The process was incredibly popular, garnering hundreds of thousands of investors and winning billions of dollars for new businesses in 2016 alone.
But similar to many institutional elements of the cryptocurrency community as of late, the ICO market has had an incredibly difficult month. Following the price crash of Bitcoin back in July, altcoins began to bleed heavily, many dropping by over ten percent with no clear recovery in sight. And although Bitcoin has begun to slowly climb its way back over the $6,000 support level, many altcoins have not been so lucky.
The failure of altcoins and the floundering ICO markets are both indubitably linked and simply explainable. According to many experts in the financial industry, the growth of altcoins from the ICO explosion of 2016 and 2017 is not a sustainable model.
As the cryptocurrency community begins to gain its footing and mature, professionals believe that the altcoins that arose as a result of ICOs will eventually die out, with only the strongest set of altcoins and major cryptocurrencies remaining. While these authors do also believe that this “crypto winter” will be very good for the lucky few companies, it is a gloom reality for smaller coins.
A Struggling Financing Model
Even when compared to the low levels of success in August, September has been a ridiculously slow month of ICO fundraising projects. This month, ICOs have raised around USD $17.5 million in cryptocurrency funds. Compared to previous months this year—and especially to rates from two years ago—this is surely a dip in overall market capitalization and general participation.
Much of the decline, according to some, is attributable to lessening retail investor interest. For retail investors, the most appealing investments will be the ones offering massive and quick returns. While the crazy 80,000 times returns experienced by some in the ICO market led to an oversaturation by retail investors back in 2016 and 2017, this year has seen few ICO prices skyrocketing to such exorbitant values.
The overall statistics regarding ICOs help to illustrate the desperate state of the industry. According to one analyst, 46% of Initial Coin Offerings actually never make any money at all. On the flip side, though, 40% of the ICOs on the market raise over USD $1 million. This means that, while many ICOs fail completely, those that are successful are often extremely so.
This statistic should help to show readers a big trend in the ICO markets, which is the inequality of wealth separating the top from the middle. Giant Initial Coin Offering like EOS, Tezos, and Telegram raised hundreds of millions of dollars, making even somewhat successful ICO projects look like jokes by comparison.
Conditions for Recovery
It is likely not the case that the cryptocurrency markets will simply cease to see Initial Coin Offerings moving forward. But in order for the industry to begin to recover from the wounds inflicted by a bearish 2018, several things need to happen. For one, experts say that the ICO industry seriously needs a regulatory hand to intervene and prevent fraud and theft, both of which are current rampant in the markets.
Additionally, the ICO markets might have to resign to the fact that the projects that aren’t up to par will likely continue to bleed, eventually falling out in exchange for the more successful projects that dominate the market.
Moving forward, the ICO community will have to struggle until interest is revitalized and market saturation from the retail investors (hopefully) returns.