Initial Coin Offerings (or ICO's for short) have been getting more attention as of late, recently with a feature in the Harvard Business Review. At Bitaccess, we have been watching ICO's for years and have put together some figures to give interested parties a closer look at the size of the market, and some key trends to be aware of.
What's an ICO?
An ICO is effectively a crowdfunding mechanism for digital currency projects. Most people know of Bitcoin as a digital currency, but there are well over 200 different digital currencies available on the market today. In certain cases, the teams behind these digital currencies seek funding to develop their project.
To do this, they request Bitcoins from the general public, and promise to issue participants new a proportional number of their newly minted "coins" (or digital currency). This is partially similar to an "IPO", in which a company issues shares to the general investing public for the first time. Some major differences between IPO's and ICO's are:
- ICO coins are not regulated, audited, or even issued by identified people in some cases.
- IPO's issue shares in operational companies. ICO's issue digital coins for projects that have yet to be developed.
How it all started
The first notable ICO was in July 2013, when the "Mastercoin" project (now known as Omni) raised 4740 Bitcoins from to build their new Mastercoin platform. At the time, this was worth approximately $613,000 USD. Back then, these were known as "crowdsales".
Things took a major change in July 2014, when the "Ethereum" project raised approximately $15,000,000 USD in the first notable Initial Coin Offering.
Are these ICO's legal?
The answer to this is complicated, but ICO's do have a lot of similarities to securities. For this reason, securities regulators, such as the Ontario Securities Commission have been issuing warning statements on the subject. Overall, this is a highly unregulated market, with no real barrier to entry. Therefore, there is real risk of scams and fraud. It is very risky to put any capital in these types of offerings.
How big is the ICO Market?
Scams and regulations notwithstanding, 2016 has seen a significant increase in the number and frequency of ICO's. Bitaccess has compiled a list of 40 notable ICO's that have raised over $100,000 USD since 2013. To date, approximately $168,000,000 USD has been contributed in these ICO's.
How have ICO's performed?
ICO's are a very risky prospect for participants, and the returns show this risk. Of the 40 ICO's surveyed, 14 have effectively failed completely, with participants losing most if not all their money.
That being said, for someone who participates in all ICOs, their portfolio would have seen some wild successes. 18 of the surveyed ICO's have a current liquid value 500% over their ICO price.
Of the surveyed ICO's the current market capitalization of the coins that have been offered is a whopping $4.5 Billion USD, based off of participation of just $168 Million. This figure is very attractive, but is mostly skewed by the spectacular performance of "Ethereum", which currently has a market capitalization of $3.9 Billion.
Yet, if we remove this one outlier from the market, we are left with 39 ICO's that currently hold a market capitalization of $606 Million, based off of initial participation of $153 Million. While there have been many spectacular ICO failures, overall, participants in ICO's have seen some very positive returns.
What do ICO's look like today?
ICO's are happening more and more frequently. One very interesting trend is the timeframe in which these ICO's reach their funding targets.
In 2013-2015, ICO's were generally open to participants for 30-60 days. That period is now closer to 1 day for popular projects.
As a matter of fact, ever since the "FirstBlood" ICO in September 2016, 6 projects have completed ICO's in under one day, raising over $52 Million USD. Those 6 projects now account for a market capitalization of $151 Million. Given these returns, the ICO market is currently very competitive, with serious competition to participate in the offerings.
How do I get involved?
First off, you should likely think twice before participating in an ICO. Most industry analysts have pointed out that most of these ICO's are going to end in tears. If you are still interested, the first step is to get yourself some Bitcoins, as that is generally the only accepted form of payment for participation.