Over the past two years, initial coin offering (ICO) projects in the crypto market have raised more than $30 billion.
Yet, most ICO projects have little to show, especially pertaining to user growth, blockchain adoption, and overall user activity on decentralized systems.
It Will Only Get Worse
A handful of tokens have demonstrated success in establishing clear vision, growth paths, and valid use cases of blockchain technology that benefits users.
Binance Coin (BNB), for instance, which already operates as the base cryptocurrency of the Binance exchange, will be extensively utilized to process peer-to-peer trades upon the launch of the Binance decentralized exchange (DEX). Tens of thousands of merchants have also recently started to use BNB to accept crypto payments.
0x (ZRX), the native cryptocurrency of the 0x decentralized exchange protocol, is necessary to facilitate liquidity amongst many decentralized exchanges that operate on top of the 0x protocol.
While there are several tokens in the market that represent viable applications of the blockchain, the vast majority of projects have ambiguous roadmaps and long-term strategies.
As Uber’s Sam Gellman said:
“After $30 billion invested in the past two years in ICOs there still isn’t a single crypto app with a real user base for anything other than speculating on crypto. The BTC price movement is tough, but the lack of real user base for anything they’re investing in is tougher.”
With regulatory hurdles set forth by the U.S. Securities and Exchange Commission (SEC), the ICO ecosystem will become even more difficult for both innovators and projects.
This week, the U.S. SEC cracked down on two ICO projects called AirFox and Paragon, characterizing their token sales as unregistered security offerings and requesting the two tokens to refund all of their investors.
“They have also agreed to compensate investors who purchased tokens in the illegal offerings if an investor elects to make a claim. The registration undertakings are designed to ensure that investors receive the type of information they would have received had these issuers complied with the registration provisions of the Securities Act of 1933 (“Securities Act”) prior to the offer and sale of tokens in their respective ICOs.”
The U.S. SEC emphasized that it is in support of the blockchain and the usage of newly emerging technologies. But, the commission said that market participants must acknowledge and adhere to local regulations.
“We wish to emphasize, however, that market participants must still adhere to our well-established and well-functioning federal securities law framework when dealing with technological innovations, regardless of whether the securities are issued in certificated form or using new technologies, such as blockchain.
Importance of Bear Market
The bear market of 2018 will filter good projects from the bad, and those that survive will be projects that have a clear vision, roadmap, active user base, and a competitive model.
As the capital in the market drops, investors who previously invested in every new project in the market will become more cautious and it will be challenging for token sales without competitive strategies to appeal to the public.
Over time, as investors learn to conduct due dilligence and the market evolves into a more competitive sector, underperforming projects will naturally see a decline in investment opportunities, user activity, and demand.