For better or worse, the ICO craze is over.
For those lucky (or unlucky) enough to not know what the ICO craze was, it was an extremely tumultuous time in the cryptocurrency world that ended earlier this year. It was a time when billions of dollars of capital flooded into cryptocurrency as both new and veteran investors snatched up as many ERC-20 tokens as they could.
It didn’t matter if the project didn’t have a working product. It didn’t matter if the project had a poorly written white paper or a mistake-laden website. In many cases, it didn’t even matter if the project had a business plan or not.
Simply put, in the middle of the ICO craze, if someone held an ICO and sold tokens, they were nearly guaranteed to raise at least a few million dollars, if not much, much more.
Dissecting the Madness
Looking back on the peak of the craze (mid to late 2017), we can see now that the majority of ICO’s from that time period have since failed. And by “failed”, it means either that they were unable to produce a functional product, that their asset prices dropped to a hundredth or a thousandth of a penny, or that the team behind it just disappeared. And that only includes legitimate projects that supposedly had good intentions. The ICO craze also saw a fair number of scam projects that never had any intention of launching a real product. They instead gathered up as much Ether and bitcoin as they could before disappearing completely.
You may be asking yourself, now that the ICO craze is over, why should we care? The simple answer is that the ICO craze has left a permanent indent on the cryptocurrency world that we are still feeling to this day. While it wasn’t a complete catastrophe, the cryptosphere has numerous bruises and broken bones that may never completely heal. Let’s look at a few of those consequences now.
The 2017 Bull Run
An argument could be made that bitcoin hit its all-time high of nearly $20,000 and Ethereum at nearly $1400 because of the ICO craze. If an ICO was popular enough, its token sale would sell out in seconds, as was seen with projects like Gnosis and Golem, just to name two.
This resulted in rampant token flipping. That’s when early investors who got big bonuses for substantial contributions immediately sold or flipped their tokens for a huge profit. It was not uncommon during the craze to see tokens bought at $0.30 and resold for several dollars or more.
This caused flippers to sell their tokens into bitcoin, which gave bitcoin blast after blast of demand. This demand then, in turn, gave bitcoin the appearance of being a nonstop rocket straight to the moon. This caused attention and hype to build, and more buyers to try and snatch up as much bitcoin as they could.
That, of course, ended with the catastrophic fall where we now see bitcoin at nearly 1/4 the price it was at the end of the bull run. And even though bitcoin is more than double where it was in the early days of the ICO craze, many shortsighted investors see bitcoin as being down, when in fact it is actually up when looked at on a large enough timescale.
ICO is a Bad Word
The ICO craze made the term ICO seem like a guaranteed win. Buy into an ICO, flip the tokens, make a fat profit, and do it again. That was true for a period of time. But now, that’s no longer the case, and most ICO’s see the market price, post-listing, is often well below the original sale price. That’s because flippers bought in expecting to cash out at a profit quickly. When that didn’t happen, many likely panicked and sold at whatever price the market would accept. This would lead to intense selling competition, and thus rapidly dropping prices.
The sudden loss of confidence in ICO’s as well as news of scam after scam hitting the market led to a massive drop in interest in the funding model. It seemed clear that there would not be another Ether that would sell at $0.30 and a year later for $300.
Huge Price Drops in Bitcoin, Ethereum
One final, significant consequence that we will go over in this article is the massive drops in price that have been seen since the end of the ICO craze.
The cryptocurrency market is still quite small when compared to traditional markets like the stock market. That means events that would be considered tiny otherwise can have huge and long-lasting impacts.
A successful ICO will gather up and centralize a large amount of cryptocurrency like bitcoin and Ether. When these assets are doing well, ICO’s are incentivized to hold onto them to maximize their potential gains. But once these assets start to drop in value, ICO’s will do the opposite, and try to sell to protect their accrued value.
The end result is simple. Once bitcoin or Ether prices drop, a bunch of ICO’s will suddenly put many millions of dollars worth of digital assets on the market, creating what is essentially a colossal selloff that causes prices to drop.
This can then potentially cause more ICO’s to want to sell their holdings, which again further depresses prices. This is entirely conjecture, but it’s conceivable that if bitcoin and Ether were not centralized mainly in the hands of ICO’s, the prices of those assets could be higher today. Conjecture aside, it’s easy to see that ICO’s doing major selloffs of their bitcoin and Ether will adversely affect market prices, at least temporarily, which can then shake investor confidence at large causing a broader selloff.
The ICO Craze is Over
Years from now, we will look back at this time with both awe and disgust. It will be remembered as a time of greed gone mad, and an inevitable downfall.
The good news is that now the ICO craze is behind us, the cryptocurrency world can repair and rebuild itself to be stronger than ever. It is this author’s humble opinion that the ICO craze and its consequent effects will be in many ways comparable to Mt Gox. Indeed we are now in many ways in a world that shares similarities with the post-Mt Gox world of yesteryear. Investor confidence is down, prices seem to be dropping with no end, and those looking to flip for a quick buck have long since turned tail and fled.
But again, this is good news. With the flippers gone and the insatiable greed put on ice, the community has nowhere to go from here but up.