11 Nov What Does the Future Hold for Initial Coin Offerings?

Cryptocurrencies are a financial product that very few people understand. Those who do recognize the importance of this digital product, however, are benefiting in numerous ways. Cryptocurrencies, often referred to as virtual currencies or digital money, reside online and have no backing from a government entity. This currency is then exchanged through a peer-to-peer network with no oversight. Most people have heard of Bitcoin, which is the most recognizable and popular form of cryptocurrency, and now initial coin offerings are being launched. What do individuals need to be aware of concerning these offerings before choosing to invest in one of these products?

What Is an Initial Coin Offering?

Startups turn to an initial coin offering when they wish to raise money for their project. By doing so, these startups can avoid the rigorous requirements typically put into place by a bank or venture capitalist. Backers of the project provide the funds needed to get the project up and running and receive the cryptocurrency in return. This is much like a person who invests in a traditional company receives stocks for providing funds for the launch of this business.

The individual taking part in the initial coin offering may or may not receive voting rights upon making this investment. However, he or she may be permitted to provide input on the process as the project moves forward. Individuals who invest in the project early often find they also receive greater rewards embedded in their tokens or currency as an incentive for providing the funds.

What Are the Advantages of an Initial Coin Offering?

Companies who choose to raise capital via an initial coin offering as opposed to an initial public offering find they are not subject to direct taxation in many cases. Participants get the opportunity to invest in new or upcoming technology or take part in shaping the future of cryptocurrencies. Furthermore, the cost of tokens in an initial coin offering tends to be very low, allowing investors to get in on the ground floor and make a good profit when the project successfully takes off. The value of the tokens is ultimately determined by supply and demand and investors can see significant returns as a result.

What Risks Do Initial Coin Offerings Pose to the Seller and the Investor?

Hacking is of concern with anything digital item and Ethereum, a major player in the cryptocurrency industry, learned this the hard way. In 2016, a project backed by this company raised almost $150 million before it was hacked and cybercriminals made away with approximately $40 million of this money. While the company covered the losses, it was a wakeup call for many who invest in these projects, and this is only one of the concerns a person may have when it comes to initial coin offerings.

As the cryptocurrency is not backed by any government, it becomes easier for fraudsters to enter the industry. People who are new to investing in this financial product may be taken in by these scammers and lose money as a result. Nevertheless, scammers and fraudsters are present in many financial industries. Simply look to Bernie Maddox and how he managed to scam people for years to see how true this is and why every investor needs to be cautious when putting their money into any financial product of this type.

What Are the Current Regulations for Initial Coin Offerings?

Due to the lack of regulatory oversight with regard to initial coin offerings, some countries have opted to ban these offerings in their country. This includes China and South Korea. Other countries have chosen to put regulations in place regarding ICOs and investors need to research these regulations before making an investment. As this industry is rapidly evolving, an investor should never assume they know the regulations currently in place. They are simply changing too quickly.

The United States has determined that any tokens offered to investors as part of an initial coin offering will be considered securities if the ICO is presented as an investment opportunity. In this situation, the tokens must be registered with the Securities and Exchange Commission or the company offering the tokens must obtain an exemption from this organization. In addition, the ICO must comply with all securities laws set forth by this agency.

England, in contrast, does not regulate initial coin offerings. However, they do allow for a case-by-case-examination of the offerings. This allows for more oversight of the offerings. France is in the process of drafting regulations, and the European Union already has regulations in place. Other countries are also looking into regulating cryptocurrencies if regulations aren’t already in place.

What Does the Future Hold for Initial Coin Offerings?

Regulations are on the rise for initial coin offerings. As mentioned above, countries are taking a second look at this investment opportunity and recognizing there are risks associated with digital currencies. The question now is whether current measures in place will be applied to cryptocurrencies or if new regulations will be established specifically for the industry. Many feel the first option is best, as it offers a higher level of protection. Others though, such as many regulators in Asian countries, feel new guidelines are needed.

Regardless of what each country decides, most jurisdictions currently do have anti-money laundering laws in place that may apply to cryptocurrencies. If they aren’t already using these laws to oversee the industry, anticipate them doing so in the very near future. Experts predict regulations will increase with time, as digital currencies appear to be here to stay.

Many experts agree initial coin offerings are a good investment, but investors do need to be wary. It can be difficult to determine which opportunities are legitimate and which are to be avoided. As there is no government backing the cryptocurrency industry, care must be taken because there is no legal recourse when a person is duped. However, this may change in the future. Until it does, investing in cryptocurrencies is a viable option that all should consider, but no investor should focus on solely one investment type. Diversification remains key to any investment portfolio at all times.