If a ban initiated by China’s central bank this week marks an end to the first era of ICOs — the early gold rush before the regulators arrive — then Q2 2017 may turn out to be a peak quarter in the history of the industry.
The total amount raised by startups via ICOs, which are known as token sales and involve the sale of newly minted crypto coins based on Ethereum, reached nearly $ 800 million in value during the three-month period, according to a report from crypto industry news site CoinDesk.
Combined with the first quarter, the publication said that total ICO funds raised during the first half of the year came in at $ 1.13 billion. CoinDesk’s ICO tracker shows that 2017 to date — so January to early September — has seen more than $ 1.7 billion raised by token sales. A previous report from Goldman Sachs estimated more was raised via ICOs than early stage investors in the first half of the year.
Q2 was notable for a huge bump in token sales financing.
CoinDesk estimates that $ 36 million was raised by ICOs in the first quarter of 2017, so that’s saw quite a jump. That’s because three of the largest token sales in history took place in June — Bancor ($ 153 million), Status ($ 95 million) and TenX ($ 83 million) — and they were central to the overall growth.
The current quarter still a few weeks to run and already CoinDesk estimates that around $ 650 million has been raised from ICOs. With big sales slated to come from Kik ($ 150 million) and Kyber ($ 60 million) among others before the end of September, the total raised in Q3 may well top the previous quarter — but the big question is what happens next.
Not only has China banned all ICOs pending an investigation — they could return in a regulated fashion — but the SEC in the U.S. and financial regulators in Singapore, Hong Kong, Korea, Canada and Russia are among those looking into whether ICOs fall under securities regulation.
That uncertainty seems likely to dampen the mood for token sales until a more structured framework for them appears. Indeed, the likelihood is higher quality ICOs but lower quantity of token sales themselves, CoinDesk director of research Nolan Bauerle told TechCrunch.
“With regard to the supply of ICO tokens, two important forces are at work. The first is market-based from the growth of analysis and key price indicators emerging from a new professional buy-side in cryptocurrencies. The effect of this market approach will likely be positive for the quality of new tokens. The other force is regulatory, from both the SEC guidance and the China ICO ban, and will likely be negative for ICO quantity,” Bauerle said in a statement.
China has taken the lead on regulation at this point, but Bauerle believes this might leave a door open to crypto-focused entrepreneurs in other parts of the world if the effects are similar to the events that occurred after China regulated local bitcoin exchanges.
“Chinese regulators have a history of moving early and aggressively in cryptocurrency regulation. January 2017 capital controls from the PBoC for China based exchanges failed to have important industry growth ramifications beyond a slowdown of Yuan-Bitcoin exchange volume,” Bauerle explained.
“While the controls led the Jan-July trade volume to fall from $ 9 billion to less than $ 1 billion, Bitcoin and other cryptocurrencies rallied 4X in that time period. In this way, while perhaps ICO regulation is needed; a full ban is actually a huge gift to US, Korean, Japanese and European investors and entrepreneurs,” he added.
One of the most exciting aspects to the boom in crypto coins and emergence of ICOs is that there is precious little direct precedent. Even the so-called experts are making assumptions and guesses on the future. What does seem clear, however, is that we may have already witnessed peak ICO season as the wild west of financing makes a move towards quality control.