The current ICO market has significantly decreased in numbers and total USD raised. This graph from icodata.io perfectly shows how the ICO phase took off and dropped down again.
There are several factors that in my opinion contributed to this decline and I will go more in-depth into them:
- Bear market
- No trust
To no surprise of anyone in the crypto space, the market has been in a downtrend since early 2018. Bitcoin and co. have continuously been dropping in value. In the late 2017 ICO boom, the market was still bullish which made it more attractive to hold an ICO. Projects spawned left and right, doing an ICO and did big marketing campaigns on all social media. Nowadays, you hear almost nothing anymore from project doing an ICO. Most ICO were funded using ETH which functioned as an amplification factor. The more ICO’s were held using ETH, the higher the value of ETH which in turn attracted more ICO’s to Ethereum. This also holds for the reverse. As the price of ETH drops, the less attractive ICO’s on Ethereum are which lowers the value and thus price of ETH even more. Since Ethereum was the most popular platform to do an ICO on, it was regarded as an indicator for the ICO market. ETH up → ICO up → ICO market up and vice versa.
Projects also tend to sit on the ETH raised in a bull market to grow their USD value and tend to sell their ETH in a bear market to preserve capital. This also affects the price of ETH to some degree and thus the ICO market to some degree.
As the general crypto market entered a crazy bull run with ETH reaching ~$1300, the ICO market took off. Remember the high price = more ICO’s. At some point, over a thousand ICO’s were held a month. As the market topped around January 2017 and turned into a bear market in the following months, the price of ETH also dropped. Remember that lower prices = less ICO’s.
The high price of ETH in the bull market, the ability for projects to raise funds quickly with the ICO model on Ethereum and the average Joe that could for the first time invest in projects without much trouble created this hype about a shift in investing. Which to some degree is true with the tokenization of projects and the lowered barrier for entry, but the reality hit back hard when the market turned around and suddenly most projects could not even survive.
There certainly were legit projects midst the ICO hype but most of them were not set up to do what they promised and only did an ICO to raise funds really quick to then either start planning what they could do with it afterward or straight up to exit scam. With an increasing amount of non-performing ICO tokens and thus no ROI for investors or entirely loss of investment due to an exit scam coupled with the decrease in the price of ETH, the ICO phase lost its hype and credibility. People used to (not advised) blindly invest into ICO’s since, in the previous bull market, were a shot at 10 – 100x without having to hustle and trade. Now the public learned that is not what reality looks like and have learned to be more skeptical and wary about ICO’s. The majority of failed ICO’s and loss of investments have left a sour mouth in the investors as they now affiliate “ICO’s” with “scams”.
This unregulated and unprotected field of fundraising was not left out of sight and soon the SEC stepped in. As warned by some, the SEC would sooner or later track down non-compliant or straight up illegal projects for stealing investors’ funds. The fear of an SEC crackdown and the regulatory uncertainty of projects lead to a decrease in ICO’s being held. All this together has had a negative effect on the ICO market and thus drastically reduced the total amount of ICO’s.
A turn around in the market would occur when the market enters a bull market again. People would be more incentivized to do ICO’s and start projects again. Regulatory certainty would also be needed. No project would want to endanger themselves and it’s investors to governments or the SEC. The tokenization of projects and assets is a stay, however, the way it used to be done needs to be changed. One way forward could be the transition from ICO to an STO aka Security Token Offering. STO’s are meant to be regulatory compliant and given a better market, would solve the two main hurdles for projects to take off again.