The lack of regulations of crypto activities has been both its boon and bane. On one hand, it allowed the emergence of innovative blockchain technologies and services. Initial coin offerings (ICOs) have become the preferred way for new tech ventures to raise capital for their projects. An open and highly deregulated market also enabled the rise in cryptocurrency prices that rewarded many early adopters. On the other, it also enabled disreputable parties to exploit the highly volatile market and prey on unwitting investors and users.
This negative aspect of the deregulated landscape that has put crypto activities under the scrutiny of regulators and governments. Various countries have their own approaches in dealing with the matter. Regardless of the gravity of restrictions, these regulatory efforts, especially those made by major economies, appear to impact both the local and international crypto markets.
China, for instance, took a hardline stance with its central bank banning ICOs even forcing those that have yet to issue their coins to refund their investors. When the ruling came out in September 2017, Bitcoin and the market took a sharp hit. Other Chinese players seem to have benefited from the move. Fortunately for the likes of NEO the ruling only applied to new ICOs and left the China-based blockchain platform unscathed. Today, NEO coin, the platform’s token, has shown strong showing in price growth thanks to its favorable outlook. The ban enabled the platform to maintain its integrity by avoiding being used by low-quality and scam ICOs as their blockchain platform.
China’s case shows how regulations can provide some interesting. Now that discussions regarding increased regulation are ramping up, it is interesting to see how regulations will eventually impact ICOs.
The ICO Boom
The emergence of blockchain and cryptocurrencies have drastically changed business and finance over the past year. According to ICOData, nearly 900 ICOs were conducted in 2017 raising over $6 billion. So far, there are already over 250 ICOs conducted that generated over $2 billion this 2018 putting it at pace to outperform last year’s token sales.
The emergence of blockchain development platforms lowered the barriers to entry enabling companies with varying states of product development to secure investments. The problem with this is that a number of these projects have weak fundamentals, poor ideas, and no working technology. Some like Tezos struggle or fail to launch despite securing significant funding from their ICOs.
Even those with good intentions like The DAO showed that errors in development and execution could cost their investors dearly. Some are even outright scams. With citizens at risk, governments and regulators were compelled to step in and protect their citizens.
Like China, South Korea’s main financial regulatory body also issued a sweeping ban on ICOs aimed at preventing scammers and criminal entities from taking advantage of the situation.
The US, in light of the collapse of The DAO, used the failed project as basis to rule that ICOs that offer tokens that function like securities are subject to securities laws. This created a stiffer environment for US-based companies to hold ICOs and for US investors to participate. Many international ICOs even excluded US citizens from joining their token sales. Only those companies willing to comply were able to push through with their ICOs.
In contrast, other countries have become havens for ICOs. Despite its strict financial regulations, Singapore has seen a number of Singapore-based companies hold successful ICOs. Its key regulatory body, the MAS, acknowledged that digital tokens have evolved beyond the cryptocurrency use case which allowed ICOs featuring utility tokens to go on without a hitch.
Switzerland, the Cayman Islands, and the Canada have all allowed successful ICOs to be held by companies based in their jurisdictions.
Compliance is Key
It does appear that any talk of regulations can be enough to jolt the crypto market. Because of this, some investors think that these rules are actually detrimental to the growth of cryptocurrencies. Partly, this may be true since blockchain technology’s thrust to decentralize human activities go contrary to the idea of regulations.
However, one can’t simply overlook the gaps in the crypto landscape that leave users vulnerable. There have already been too many misdeeds that have cost many investors their hard-earned money. Governments must look at their citizens’ best interest. If companies truly have good intentions must simply have to comply with these regulations. For instance, many ICOs, especially those for payment and financial services, have also applied know-your-customer and anti-money laundering measures in order to comply with the fundamental requirements of any player in financial services.
Governments, however, must also do their part and be timely and definitive with coming up with regulations. Until such a time that regulations have actually been announced and enforced, companies still seem keen on taking advantage of the lack of rules and pursue ICOs while there is still plenty of money to go around. Eventually, regulations would only encourage high-quality projects and discourage those that have truly nothing of value to offer. Rules may temper the craze but they may also bring normalcy and quality to the wild crypto landscape.
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