Chris Osborne

Is the ICO party over?

After a record-breaking year of more than $5.5B in funding last year, many saw a bright future for ICOs. And when looking at the raw numbers, it’s tempting to think that’s still the case. This year’s ICO funding has already surpassed $10B, in a significant increase over last year’s total, and new token projects continue to launch every day.

But storm clouds are on the horizon for ICOs – securities regulators have been cracking down in recent months (four more ICOs were shut down in the US just yesterday), and regulatory pressure has forced many token projects to look elsewhere for funding.

In the third quarter of this year, ICOs raised just $1.8B – a dramatic decline from Q2 of this year, which saw more than $8B in funding raised. This regulatory pressure, combined with an overall downturn in the crypto markets, has left investors reluctant to invest in ICOs with poor prospects of a healthy return.

But is the ICO party really over for good, or will other funding methods take its place in the blockchain industry? It seems likely that for the time being, venture capital and private equity firms will pick up the slack where ICOs left off.

As ICO funding for crypto projects has continued to decrease in recent months, VC funding for those projects has only been increasing. In fact, a recent report from Outer Ventures found that VC investments in the crypto sector rose from $900 million in 2017, to more than $2.85 billion this year. This influx of VC funding is helping blockchain projects continue to build even as ICO funding slows, which should be encouraging for crypto founders.

Still, the Securities and Exchange Commission remains focused on regulating ICOs, and the regulatory body maintains that the funding mechanism won’t be going away anytime soon. This week, the regulatory body created an ICO guide for investors that outlines how ICOs are presently regulated, and how to handle risk and unregistered offerings when assessing investment opportunities.

After much uncertainty, the SEC has finally confirmed that ICOs are indeed securities, and this is also reflected in its latest update. The site also provides updates on the latest regulatory activity around ICOs, which should prove useful for token projects considering launching an ICO of their own.

Recent events have made it clear that the ICO party isn’t dead yet – it’s just moved locations. While the verdict is still out on how ICO fundraising will evolve in the future, for now at least, venture capital seems set to become more prevalent than token sales for at least the next few quarters.