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Tuesday, May 21, 2024

The Role of Initial Coin Offering Development on the Cryptocurrency Industry

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The process of Initial Coin Offering Development has been embraced by startups to gain funding by using cryptocurrencies. The first ICO was by Mastercoin in 2013. ICO’s peaked between 2016 and 2018 where a whopping amount of $28 billion was raised by 1601 different ICO projects. They have been popularly called as a viable fundraising method for the future as they are not subject to direct taxation. Some of the biggest ICO’s have been Filecoin, Tezos, EOS, and Bancor. ICO’s can be either private or public. 

Some of the important features of an ICO are participation in a project, sale of coins or tokens, prices determined by the creator of the project, multiple rounds of fundraising with the value increasing until the release date, distribution of rewards to early investors and they get completed once the coins or tokens are tradable in the open market. 

A Step by Step Explanation of the Procedure Followed by an ICO Launch Services Provider

  • Potential investors need to be found by providing them with a relatable and feasible business idea. 
  • A valuable token needs to be created with some utility or backed up by an asset on the blockchain network. They should be easily tradable and fungible. Platforms like Ethereum can be used to create tokens. 
  • Organized marketing campaigns need to be conducted on a massive scale on various online communication channels. It may be promoted by hiring famous public figures or celebrities. They have to reach the minds of the target audience by offering airdropping (free tokens) for early investors, introducing referrals, and affiliate marketing. 

Analyzing How ICO’s Have Influenced Cryptocurrency Trading

  • More institutional investors are showing interest in investing their money in ico launch services boosting the credibility of the industry. They are making a rapid shift from cryptos due to their nature of being unregulated, uncertain, and volatile. Many banks such as Bank of America and Royal Bank of Canada are offering shares for ICO’s on their platforms to send real-time payments internationally. 
  • Cryptos are becoming part of the mainstream economy due to the huge number of virtual currencies emerging in recent times. This will lead to an increase in the number of investors for the project shooting up the liquidity of the ICO. 
  • Scams in ICO’s are a big challenge as it tarnishes the hard-earned reputation of the industry. Hence, more countries are using their regulatory bodies to come up with strong regulations to ensure the safety of the money of investors. The European Union (EU) and the Securities Exchange Commission (SEC) have started releasing detailed regulatory frameworks regarding crypto assets that will cover the launches of coins, tokens, exchanges, and service providers associated with ICO’s. They have started freezing ICO projects that are promising unattainable returns. 

The Future in Store for an ICO Launching Platform 

While cryptocurrencies started their journey more than a decade ago, ICO’s have disrupted the financial sector the most by enabling faster transactions and cross-border transfer of funds. While IPO’s (Initial Public Offerings) are the biggest competitor to ICO’s suffer from extensive documentation, compliance issues, and access only to local investors, ICO’s are hitting the right notes as there is no detailed documentation and regulatory threshold to fulfill. The firm can offer the tokens immediately to the target audience after declaring its interest officially. 

Many experts are comparing the massive rise of ICO’s with the internet companies that emerged post 2000 during the dot-com crash. ICO’s can severely impact traditional financing methods such as private equity, venture capital, and corporate debt instruments. ICO money is more liquid with the easily assigned value and can be traded within a short time. Most of the ICO’s are taking full advantage of the inflated valuation of cryptocurrencies such as Bitcoin or Ethereum to raise sizable sums of funds. 

Though thousands of ICO’s have hit the market, only a few projects have become incredibly successful. The main benefit is that the investors experience sufficient liquidity as they can cash in and out at any time according to their wishes without tying their money for many years. In case the ICO project promoted by the firm does not follow proper due diligence, gullible investors could expose themselves to Ponzi schemes. In case, an investor becomes a victim of a fraud or a scam, the money lost is unlikely to be recovered. 

The process of ICO fundraising could be affected if there is a massive market collapse in the valuation of cryptocurrencies. However, valuations will grow exponentially with a combination of factors such as access to cheap money, over-confidence in the market, and investors on the constant hunt for the next big thing. 

Guidelines have been coming at a slow pace as regulatory authorities around the world were not adequately prepared for the introduction of a revolutionary fundraising model in finance. Things are not rosy in Asia as China and South Korea have issued blanket bans on ICO’s. Countries like Australia, New Zealand, Hong Kong, and the UAE have already published detailed ICO guidelines to govern the conduct of ICO’s.

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