ICO Market Crosses $1 Billion Mark, Is Bubble Imminent?

Sources including the Wall Street Journal have revealed that the ICO market has surpassed the $1 bln mark, with some of the recent ICO campaigns including EOS, Bancor and Tezos successfully raising hundreds of millions of dollars.

Tezos, Bancor and EOS alone have raised more than $559 mln over the past few months, offering unique infrastructures and platforms built on top of the Ethereum protocol.

EOS for instance, which was heavily criticized for its controversial Token Purchase Agreement, gained popularity amongst investors within the cryptocurrency market for its infrastructure that provides an efficient, scalable and flexible ecosystem for decentralized applications and smart contract-based platforms.

Bypassing regulation
ICOs are becoming increasingly aware of the potential regulatory conflicts and issues that may arise between ICO-conducting companies and government agencies such as the US Securities and Exchange Commission.

Most ICOs including EOS emphasize prior to their ICO campaigns that US investors can’t participate in token sales and that the native tokens of ICO projects do not have any intrinsic value. As an example, the Token Purchase Agreement of EOS read:

“As mentioned above, the EOS Tokens do not have any rights, uses, purpose, attributes, functionalities or features, expressed or implied. Although EOS Tokens may be tradable, they are not an investment, currency, security, commodity, a swap on a currency, security, or commodity or any kind of financial instrument.”

Admitting that its native token does not have any purpose and uses and therefore can’t be considered as an investment, currency and a commodity is not necessarily a positive move for marketing.

Non-existent
According to the development roadmap of EOS, its software has not even passed the alpha testing phase and thus, do not have any active users or deployed platform. The primary purpose of the native token of an ICO is to act as a store of value or native currency for that platform. But, if the platform does not exist and it is not being actively utilized by decentralized applications, then quite evidently, investors will purchase tokens simply as a means of speculative investment.

Exponential
Still, experts and analysts including California-based law firm Cooley LLP partner Marco Santori stated that the demand towards ICOs is increasing at an exponential rate:

“It’s very hot right now. For the last six months, it’s been about 60 percent of my work flow.”

At the moment, it is very difficult to justify the market value of the entire ICO market and its projects. Their value is completely speculative and can’t be evaluated with real market data because no viable products or software have been deployed yet.

Despite the bubble-like nature of the ICO market, billionaire investors such as Tim Draper, who backed the ICO of Tezos and Bancor, stated that investors are focusing on the ICO market because of “a sea change as big as the Internet” it can bring in the near future.

However, Coinbase co-founder Fred Ehrsam stated that the Ethereum network itself, which remains as the base protocol of ICO platforms, will need to improve or scale by a factor of 100 times in order to support one to 10 mln users. Hence, the development and transformation of ICOs aren’t enough, Ethereum will also have to scale and improve in order to justify the market value of ICOs and the ICO market.