The ICO train is showing no sign of slowing down in 2018. On the contrary, its velocity only seems to be increasing with every passing month. Of the total of nearly $8.8 billion raised in ICOs in 2017 and so far in 2018, $6 billion was raised just in the fourth month period from December 2017 to the end of March. Regardless of how one feels about the topics of cryptocurrency and ICO’s, one can not deny that this is a serious amount of economic activity. But while ICO’s are continuing to be the focus of acute public (and media) interest and speculation, the wild west atmosphere that was once a hallmark of the cryptocurrency ecosystem is beginning to fade.
Last week, US authorities stated that: the SEC will pursue enforcement action against anyone seeking the benefits of the United States capital markets without following the requirements of the Securities Act. The above statement — making it abundantly clear that the US authorities intend to treat any ICO that seeks to raise money for an enterprise as the sale of a security.
This push for increased regulation by authorities around the globe has at least partly been in response to numerous reports of fraudulent activities surrounding purported ICO’s and token sales. Indeed it is this above-mentioned notoriety that ICO’s have achieved by being the focus such intense media hype, that induced so many naive and gullible members of the public to line up with their savings in hand, and in turn, made it prime hunting ground for scammers.
For those unfamiliar, ICOs — which have become a popular way for companies (especially start-ups) to raise funds without having to rely on middlemen such as venture capitalists or investment banks. They have essentially become the cryptocurrency world’s analog of an initial public offering (IPO) for stocks. And much like investing in shares of a stock, some coins provide investors with a stake in a healthy, growing enterprise, while some only provide issuers with a way to defraud investors.
In one of the more publicized cases, back in October of 2017, the SEC charged Maksim Zaslavskiy and two of his companies with selling unregistered securities. According to the SEC, Zaslaviskiy was selling digital tokens that he claimed were backed by diamond and real estate investments. Unfortunately for investors, the assets being peddled via Zaslavskiy’s REcoin Foundation and Diamond Reserve Club didn’t really exist. The charge includes Zaslavskiy falsely claiming to investors that between $2 million and $4 million had already been raised when in fact the actual amount was approximately $300,000. The amazing part was that no one bothered to check his numbers until it was too late.
In story after story about ICO-related scams, one critical detail always seems to emerge — the promises made to investors were too good to be true from the very beginning and the telltale signs of a scam were visible long before the imminent collapse came. While ICO’s, cryptocurrency and blockchain technology all have the potential to bring tremendous benefits and improvements to the way commerce and business are conducted and despite all the buzz surrounding ICO’s, investors must never abdicate their personal responsibility and capacity for critical thinking.
