The Initial Coin Offering (ICO) market is going through a turbulent period of change and regulation. Following an incredible rise of the new form of raising capital online, regulators around the world are pumping their rule making breaks to slow down cryptocurrency based securities offerings. Starting with the US Securities and Exchange Commission in July, followed by multiple securities regulators across Asia and elsewhere, government officials are warning both issuers and investors about the risks of ICOs. China, a huge player in the cryptocurrency space, rattled the digital coin world when government officials effectively banned domestic ICOs altogether.
So is this the end of the tokenized joyride? Will early stage companies need to go back to less exciting debt and equity to capture necessary growth capital? Are the days of $100 million ICOs over? Hard to tell, at least for now. Regulators are not necessarily saying ICOs are outlawed offerings. They are saying they need to follow the rules. This is an important step in the legitimization of cryptocurrency based securities that may, in the end, be a positive catalyst for the future of crowdfunding.
Currently, there is plenty of opinion and speculation as to what might occur next. Crowdfund Insider reached out to Stelian Balta, founder and Managing Partner of HyperChain Capital, for his perspective. HyperChain Capital is described as a digital assets hedge fund focused on blockchain based projects, decentralized protocols and ICO’s. A quick view of their portfolio page shows a who’s who of prominent ICOs from recent months. Balta remains staunchly optimistic about the ICO market – even as it slows. He believes recent governmental actions are part of a natural and healthy evolution for the future of digital asset investment. Crowdfund Insider asked Balta several questions about the recent regulatory moves and his opinion on the future of crypto-securities. Our discussion is below.
The announcement that China has pushed pause on ICOs was not completely unexpected as government officials have been messaging this move in the past couple of weeks. How will this impact the Asian ICO market? What about the Global ICO market (as many offerings are pan-national).
Stelian Balta: I think PBoC’s decision is coming in a moment of irrational exuberance, where low quality projects and anything related to “ICO” and “blockchain” concepts attract a lot of funding. This is not sustainable. More jurisdictions will regulate and we welcome that. We need protection for users/investors and we need rules for growing a healthy ecosystem.
What will the impact be on the price of the various digital currencies?
Stelian Balta: There was an expected sell-off in the digital assets market, but this is temporary. The market is starting to recover, being very sensitive to news from China. The digital assets market is a nascent market, we are only at the beginning and we expect a lot of turbulence and also exuberance in the years to come.
The Chinese government expects to issue new rules concerning crypto and ICOs by the end of the year. What are your expectations for these new rules?
Stelian Balta: We, at HyperChain Capital, as investors and advisors, are looking very closely to the ecosystem and important jurisdictions, like China. We think that having investor protection mechanisms and other regulations are important to curb the proliferation of projects raising money with only a whitepaper and promises.
China has been largely supportive of Fintech in general. Has Crypto / Tokenized offerings caught them off guard?
Stelian Balta: China is looking very closely towards the Fintech and digital assets markets. I think the rules are to curb proliferation of low quality projects, bad intended projects or scams.
Will China’s regulatory actions create opportunities for other jurisdictions?
Stelian Balta: Singapore and USA made great first steps in regulating ICO’s and more jurisdictions are following (Hong Kong, etc). We need standards, we need rules. With proper rules, the ecosystem will grow much bigger.
Once the dust settles – will ICOs return in force? Is this the future of early stage funding? Is there risk of a bubble?
Stelian Balta: I think we are at the early stage of the digital assets market. It’s the first asset class natively born on the Internet. We have a long long way to go. Digital assets market is not a bubble, it’s simply a new economic paradigm. In any market there are risks of bubbles and I think we are very far from that. Why? Because we’re starting to see real use cases of projects financed using ICO model.
The dotcom bubble was only in the USA and from that bubble, important companies like Amazon, Google, etc emerged. The digital assets market is a global market in an age where billions of people have access to the Internet for information and now also for storing value. I am very optimistic about this new asset class and I think it will reach $1 trillion in less than 2 years.
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