Cryptocurrency and ICOs are entering a new phase. The Chicago Board Options Exchange (CBOE) opened the floodgates with their foray into Bitcoin futures trading in 2017. During the first six months of this year, many traditional financial institutions were reported to be exploring cryptocurrencies. And today we are seeing more and more institutional investors coming into the scene.
But the price slump has left many retail investors wondering if the party is over. A group of institutional investors representing different funds gathered at TechNode ORIGIN’s Disrupt Stage at this year’s SWiTCH (Singapore Week of Innovation and Technology) to discuss the future of blockchain, ICOs, and the many tokens that appeared during the last year.
“I think we are going through a normal market cycle,” said Liu Guojie, Managing Director at BIBOX SEA. “During the early stages of internet development, we also saw a lot of bubbles. We are seeing similar things in the crypto and blockchain market.”
Others have offered different reasons. Li Xi, Regional Head at LD Capital in Singapore said that prices have dropped because some early players already achieved more than 100 times return and are actually cashing out.
“The second reason is that ICO fever is gone,” said Xi. “Previously you could use just one whitepaper to raise $1 million with no established business model but now everyone knows 99% of ICOs are scams.”
Do ICOs have a future?
In the first 5 months of 2018, a total of 537 Initial Coin Offerings with a volume of $13.7 billion have been closed successfully—which is more than all pre-2018 ICOs combined, according to PwC and Crypto Valley. But not everyone is convinced that the ICO will continue to be a significant form a fundraising in the future. China, for instance completely banned ICOs in late 2017.
According to Xi, the prospects are dim for ICOs since the majority of investors already got burned.
“Even institutional investors got scammed by some projects,” Xi said.
Elon Huang, Founder of MainNet Capital, shared similar skepticism towards the rise of so-called “shitcoins.” He believes that we may see more serious ICO projects in the future coming from bigger institutions.
Unlike the traditional funding scenarios where investors would be included in important decisions, with ICOs it is easy for them to lose control over a project. Aside from legal frameworks that would pressure project teams to disclose their use of funds, another possible solution would be depositing funds in an escrow and releasing them after certain milestones have been reached.
“In that way, we could align the investors’ and the project team’s interests,” said Liu. ICOs still does solve some problems that traditional venture capital cannot, according to Piyush Chaplot, Partner at NEO Capital Group.
“The great thing about ICO is that it has shown us the potential that we don’t have to follow the conventional venture capital path,” said Chaplot noting that ICOs offer global and immediate participation. If we give it some time, something beautiful may come out of the ICO mechanism, after all, he added.
Lack of regulations remains an obstacle
Several countries in Southeast Asia are already trying to fit ICOs and cryptocurrency trading into their regulations. Singapore, Thailand, and the Philippines are at the forefront. Thailand launched a regulatory framework for ICOs in July according to which all companies must be approved by Thailand’s Securities and Exchange Commission (SEC).
The Philippines are also preparing to release new trading rules for cryptocurrency exchanges while Singapore, Asia’s financial center, hosts most of the token funds. The Monetary Authority of Singapore (MAS) and the Singapore Exchange (SGX) are currently looking into creating a platform for selling tokenized securities along with technology firm Anquan, consulting company Deloitte, and stock exchange operator Nasdaq.
However, governments and especially their central banks are careful when approaching these types of funds. Like China’s central bank, most are afraid of cryptocurrencies being used for capital flight, money laundering and financing illegal activities including terrorism. Protecting investors is also an issue.
As for investors, they are still struggling with some basic issues such as how to pay taxes. Rules for ICOs are still unclear but the difficulties may not be so large as they seem.
“Blockchain is a good tool for governments to trace taxes,” said Huang.
Despite the optimism in Asia, recent news from the US are casting a shadow on the crypto enthusiasm. At the beginning of September, Goldman Sachs, one of the companies that has been bullish on token trade from the beginning, put its plans for a cryptocurrency trading desk on hold sending crypto prices down again.