No More Wild West on the ICO Front

You have heard about the Useless Ethereum Token (UET),  my smart friends, haven’t you? I'm sure you have. You can’t have missed the news about “The world's first 100% honest Ethereum ICO” that “offers investors no value”? The guy who invented it must have a really good sense of humor, because thousands of people invested in the UET and currently it has a market cap. of more than $50,000. BTW, have you seen the UET logo? By all means, look if you have not yet, and enjoy a good laugh. I, the old Curmudgeon, who remembers long before the dot com bubble and its bust, know that the market does not like jokes. It never forgets, it never forgives and it has an ugly sense of humour. It won’t tolerate the scores of “next generation platforms” that are developing “the most decentralized blockchain” for a “community of millions of users” for long. It may be fun to read about Insanecoin, Unobtainium, Pandacoin and the like, but it would be foolish to think that the whole of the ICO market is just for fun. On the contrary, it is dull and boring and is becoming even more so as the big money of institutional investors gradually begins to pour into it. The Wild West period of the ICO market is over. Although it may not yet be fully integrated into global financial markets, it is coming to look more and more like a traditional market, where big money rules. We all saw this 20 years ago, when in the same way Internet startups were integrated into big business and the more traditional global markets. Let’s have a look at the list of the industries most preferred by investors in 2017 (according to ICORating). In first place, and by a large margin, is Blockchain Infrastructure. The financial sector is also generously represented in the top-10 by several categories: Banking and Payments; Financial Services, Investment and Prediction Markets. The other five industries that found their way in the top-10 are Computing & Data Storage; Internet & Telecommunications; Gaming & VR; Exchange & Wallets, Business Services and Consulting. So far so good The top-10 comprises blockchain infrastructure (including exchanges and wallets), the financial sector (one of the first to understand the potential of blockchain technology), IT and Gaming. And now let’s have a look what the list of industries most preferred by investors looked in the second quarter of 2018: Financial Services Blockchain Infrastructure Banking & Payments Internet & Telecommunications Drugs & Healthcare Social Media & Communications Investment Trading Computing & Data Storage Business Services & Consulting The top-10 is heavily dominated by the financial sector, and blockchain infrastructure is holding its position - same old, same old. However there is something new. Gaming has lost its place in the list to Drugs & Healthcare, which proudly claims fifth place. Does this mean that the gaming industry has lost interest in the ICO market? Nothing could be further from the truth. Gaming and VR places third in the top-10 by number of projects, trailing only Financial Services and Investment. However, according to ICORatings, Gaming & VR is not even in the top-20 by mean hardcap, while Drugs & Healthcare is the seventh among the top 20. (BTW, look at the projects that are now listed by the Cryptonomos marketplace. It is rather revealing.) There is another trend, identified and described by ICORatings, that should be disturbing to those sectors that are steadily losing ground in the ICO rankings. In Q2, 55% of all ICOs failed to complete their crowdfunding. There were 827 successful deals, and just 204 of those projects managed to raise more than $100,000. The percentage of ICOs which could not raise $100,000 has increased from 13% in Q1-Q2 2017 to over 50% in Q1-Q2 2018. What could better demonstrate that the Wild West days are long gone for the ICO market. Serious investors have come to this market: hedge funds, family offices and other investment funds. And I, old Curmudgeon, like it. Yes, there is no room in this, now more mature, market for projects that help geeks feel their own self importance. It also means that talented projects with real potential to change our lives for the better have more of a chance to raise financing than a year ago.


ICO market moves to pre-sale deals

The summer is almost over. Local markets are full of seasonal vegetables and summer flowers are in full bloom, but we’re cooling off. We’re trying to squeeze what more we still can out of a beautiful summer, but one can’t help but think ahead to winds, raincoats and darker evenings. We’ll see no more summer terraces until next March. In the meantime people are grabbing last-minute deals in the sun: Greece, the Azure coast and the Med. Among them are surely the financial regulators. Regulators do deserve a good rest. For the last year they have been working hard to protect mom-and-pop investors from the “new evil” in the market of financial instruments - initial coin offerings (ICOs). In 2017 the ICO boom caught regulators by surprise, but in 2018 they took revenge. From January - July hardly a week passed without another development from regulators, be it the SEC, the European Commission, or their Asian peers. They warned non-accredited investors against putting their money in ICOs, advising them not to take risks associated with such deals. Such policies did achieve results; many ICO projects indeed changed their plans and strategy. The increased scrutiny made them hire more lawyers to navigate the new regulation, and these guys never come cheap. But additional costs did not help them to increase their investor base, because the ICO market of 2018 has little resemblance to the ICO market of 2017. It is no longer the market of bored housewives, teenage prodigies and office clerks. Now it is the market of venture capitalists, family offices and crypto hedge funds. About 18 percent of funds raised in ICOs this year were exclusively through private sales, CoinSchedule says. The ICO market has become less democratic. ICOs are increasingly reliant upon institutional investors for their funding, CointSchedule reports. According to CoinSchedule, a number of potentially blockbuster sales, including the $1.7 bn Telegram ICO, ended up cancelling their public sales because they raised enough money privately before ever opening their sale to their public. By eliminating public sales, ICO projects can save from $1 million to $3 million that they would otherwise be forced to spend on legal, marketing and advisory services, says Lex Sokolin from Autonomous (as quoted by Bloomberg). $3 million is a lot of money. Excluding Telegram, ICOs raised on average $30.7 million this year through June, according to CoinDesk data. Selling tokens to accredited investors is not only cheaper but much easier too because less regulation is applied to them. At first glance, the global ICO boom appears to be far from slowing down. ICOs have raised $18 billion this year, almost five times last year’s total according to CoinSchedule. It’s worth noting though that this result was helped by several mega-ICOs, including Telegram. In fact, the state of the ICO market is a much more mixed picture. The change towards pre-sale capital raises eliminated scam projects and weak startups from the market, which is obviously a good thing that brought greater maturity to the market. However, many sound and legitimate, but not very big, ICO companies were caught off-guard. First, they had to take pause to adapt their strategies to the new environment. Second, they soon came to realise that it takes longer to raise capital through private pre-sales only. According to Tokendata, pre-sale activities add at least a month to the ICO process. For many ICO startups, adapting to this change was a brutal experience. Most of them missed their targets in the 2nd quarter, says ICORating. Although money continues to flow into the market, only a very small group reached the $50 million milestone, while a large number of ICO projects were only able to gather around $100,000. ICORating believes that most of the ICOs that failed were those with poor products. It seems that regulators can enjoy their well-deserved vacation. They have protected mom-and-pop’s money, but made it more difficult for weak ICO projects to raise funds and sent a clear message to stronger companies that the period of easy money is over. Does this mean that the ICO market has become tougher for average players that seek to raise around $20 – 50 million? Yes, raising capital has become more difficult for them. But conventional wisdom says that the market is always, always a step or two ahead of regulators. There is no lack of money waiting to enter the ICO market, and those ICO projects that will be the first to figure out how to work in the new environment will be justly rewarded.


Malta: a Hub of the Crypto World

If you’ve been following the news, you may have noticed that Malta, Southern European island country, is quite a hyped topic for the crypto community. As of now, so-called ‘blockchain island’ attracts more and more blockchain specialists across the globe. But what are the reasons behind Malta’s appeal? Sit back, put your finger on a scroll wheel and read why the country is well placed to be a fertile ground for crypto investors and businesses. How did this solely tourism-oriented country become a safe haven for blockchain and crypto-based businesses?
 Firstly, it’s all about supportive regulatory measures. In order to strengthen Malta’s position as an attractive destination for crypto businesses, and crypto exchanges in particular, in May, 2018 country’s government has decided to introduce a comprehensive regulatory environment for companies offering services in the crypto field. It introduced for reading in the parliament three bills related to blockchain, which were later approved during the second parliamentary reading on June 26. These three bills are nothing but ‘Three Pillars of the Malta’s Innovative Economy’, in a manner of speaking. The first one, the Virtual Financial Assets Act (VFA) will regulate ICOs.  The second one, the Malta Digital Innovation Authority Act formalizes regulatory procedures for the cryptocurrency and the blockchain industry at large. And the last Technology Arrangements and Services Bill details the registration and certification of technology service providers, technology arrangements, and registration of exchanges in Malta. These regulations make Malta one of the very few countries which can boast with such policies and truly recognize crypto and its underlying blockchain technology. Malta’s Junior Minister for Financial Services, Digital Economy and Innovation, Silvio Schembri believes: “We were given the title as being the world’s blockchain island due to the way the Maltese government views blockchain technology as a whole. While other countries are typically looking at crypto and blockchain for short-term gains, we understand what blockchain technology can offer in the long run” Following all the hoopla relating to Malta’s supportive regulations, several crypto-based companies and exchanges, such as fundraising platform “Neufund”, the digital asset exchange OKEx, and the blockchain platform Poseidon Foundation has already decided to move to the country. And it comes with no surprise as the laws approved will attract more crypto-based companies. It implies a greater legal clarity, competitive tax regime, and excellent business infrastructure. Plus, Malta could be an ideal safe haven for Chinese blockchain-based projects, as China’s government has trenchant position relating to cryptocurrencies. For example, even one of the globe’s biggest exchanges, Huobi, was forced to leave China in September last year because of severe legislations. Well, let’s get back to Malta. One of those companies which have decided to move particularly to the island is Binance, the world’s largest cryptocurrency exchange. Silvio Schembri, believes Binance’s presence in the country will strengthen the Malta’s authority among other investment attractive regions: “This is a clear vote of confidence in our country and the work being done in this sector, mainly by the latest policy launched to offer a regulatory framework of distributed ledger technology operations. Binance’s presence in Malta sustains our vision, that of making Malta ‘The Blockchain Island” Binance has already opened a bank account in Malta. And exchange’s plans to enable fiat-to-crypto deposits and withdrawals are fully backed by Maltese government’s plans and intentions. Furthermore, world’s second largest crypto exchange OKEx also moved to ‘Blockchain Island’. Following the meeting with Malta’s regulators, OKEx representatives seem to be “confident in the Malta government’s approach and further OKEx growth”. As of now, Malta looks like a textbook example when it comes to fintech sector. An entire crypto community hopes that Malta’s warm welcome of crypto-based businesses and exchanges will influence other regions, where holding the crypto is considered as almost a sin. Will we see more exchanges moving to Malta? Time will tell. But still, it can safely be said that more and more startups and exchanges will move to regions that have pro-blockchain legislature and are led by forward-thinking regulators. Thankfully, Malta is not alone. Some countries are also about to mitigate the regulatory measures relating to crypto projects. In our next article we’ll tell you about Malta’s direct competitors for the ‘Throne of Blockchain World’ such as Belarus and Japan. Stay tuned!

How to Detect Scam ICOs and not to Lose Money

Every day Cryptonomos platform receives up to seven applications from startups that want to hold their ICO on our marketplace. But we choose only one project every few weeks: we help to raise money only trusted projects with a good product. And we also do our best to help our clients to avoid losing their money. We understand that the ICO market is still unregulated. We are all in the same boat, token buyers, ICO initiators and marketplaces that help to hold ICOs. We all want to have equal playing field with definite rules and guarantees against fraud. However, the ICO market is still far away from being transparent for investors, and scam projects are far from being rare on it. Around $600 million has been raised through fraudulent schemes, the US Security and Exchange Commission (SEC) estimates. Soon we might hear even bigger numbers: in May the US and Canada launched a coordinated operation to investigate suspicious cryptocurrency investment schemes. 70 investigations are already underway, media say, and more are to come. This widespread crackdown is called Operation Crypto Sweep. And a few days ago Bloomberg reported that the Federal Bureau of Investigation has 130 cases tied to cryptocurrencies.  That is why we decided to share with you some rules that help not to become victim of fraud. Here is a list of red flags that often help to detect scam ICOs. Following these recommendations you will be able protect your money from fraudsters and concentrate on opportunities to earn some money. We hope it should not come as a surprise, but chances of losing money in a scam ICO decrease dramatically, if one buys tokens not on one’s own, but through a trusted market places with KYC (Know Your Customer) procedure. Cryptonomos is one of such platforms, but not the only one. However, if you are brave enough to buy tokens on your own, beware that if an ICO project promises returns, especially high returns, it’s a sure sign that the project is scam. Nobody but the God of the Market can say, if the ICO segment will be growing or not. Most of projects that promise high returns are nothing, but Ponzi schemes. Check the documents. The Wall Street Journal recently conducted a review of 1,450 coin offering documents and found that hundreds of technology firms were using deceptive and even fraudulent tactics, including plagiarized investor documents. Always ask for the White Paper and Terms of the Token Sale at least and check them for plagiarism. Do not trust ICO projects endorsed by too many, or unlikely, celebrities. Beware that some fraudulent projects use fake biographies of executives and advisers. Some scam ICO sites have even used the unauthorised images of celebrities such as Prince Charles and Jennifer Aniston to sell their tokens. On the other hand, if executives and co-founders of the project prefer to remain anonymous, it is just as bad. They are not the Count of Monte Cristo, ICO projects should be transparent. Do not be lured into buying tokens, if the company that is holding the ICO is boasting partnership with many prominent corporations. Recently, the SEC charged Sohrab Sharma and Robert Farkas - co-founders of Centra Tech. Inc. - with carrying out a fraudulent ICO. Centra offered CTR tokens to investors, which co-founders claimed were backed by Visa and Mastercard and would allow people to convert cryptocurrency to U.S. dollars in order to spend it in stores. In fact, Centra had no relationship with either company. Do not trust projects that do not have a product that will find demand on the market. Or even worse, projects that do not have a product at all. Have you heard of the Useless Ethereum Token (UET)? It was created as a joke, do not forget that some crypto-enthusiasts have a very specific sense of humor. Study the roadmap of the project. If it is confusing, or sets too optimistic goals, better stay aside. No media coverage, or very generous media coverage is a bad sign. Visit the projects that conducted their ICOs on the Cryptonomos platform. At the bottom of their page you will always see what publications wrote about them. All credible ICO projects have sensible media budgets and do appear in many publications. The credible ICO project always has an official website, and all its content is translated into several languages, including, for example, Russian and Asian languages (once again, come and see how Cryptonomos does it). The project should also be present in the social media. The content is usually doubled: by the startup itself and by the marketplace that helps it to raise money. We hope that the list is complete. But we promise to update it if some new information emerges about potential threat to token buyers.

Articles/August 17, 2018