THE ICO MUDDLE
INITIAL COIN OFFERINGS HAVE RAISED OVER $3.7 BILLION, WORRYING REGULATORS GLOBALLY
BITCOINS AND CRYPTOS are not the only enigma for the world’s regulators. They have another headache to deal with— Initial Coin Offerings (ICOs). Some fear this may be akin to the housing bubble of the US where tier upon tier of investing options were built on crumbling underlying assets which eventually brought the whole market crashing down.
ICOs are essentially IPOs of two kinds: One, that raises funds for a new crypto- currency on the lines of a Bitcoin or Ripple. These offer digital tokens to investors at a fixed price that can be swapped for the new crypto- currency at a future date once it gains in popularity.
The second kind are those that use the proceeds of the ICO to start up a company. These digital tokens promise exchange with equity during angel, venture capital or private equity funding in the future. Or, when the company goes for its own initial public offering.
These crypto-tokens issued via the ICOs are traded on independent exchanges which makes them transferable. In November, 2017, European Securities and Markets Authority warned about a ‘high risk of losing all capital’ on ICOs. Earlier, the Securities Exchange Commission of the US had also alerted investors against ICOs being endorsed by celebrities once Paris Hilton and boxer Floyd Mayweather flooded Twitter with their own.
While companies going for IPOs have to get approvals from the stock market regulators, ICOs have nothing more than a business plan to offer. Yet, global ICO funding, especially in the US and Europe, has already crossed $ 3.7 billion in three years. People’s Bank of China (PBC), has barred companies from raising funds via ICOs, calling it illegal. PBC also clarified that digital coins and trading platforms are banned from converting coins with Yuan and vice versa. On 30th January, the US SEC moved court to block ‘decentralised bank’ AriseBank after it said it raised $ 600 million through the world’s biggest ICO ever. India’s markets regulator SEBI has yet to decide on allowing ICOs as a means for raising funds.