The market for initial coin offerings was close to collapse at the end of last year, as investor support for cryptocurrencies and other digital assets declined sharply.
DigitalX, a local company that advises on ICOs and security token offerings, reports that the number of ICOs globally fell from a peak of 807 issues in the March quarter last year to 182 in the December quarter.
Funds raised fell from a peak of US$1.5 billion in January last year to around US$75 million in December.
According to industry publication NewsBTC, there are a couple of reasons besides the fall in cryptocurrency prices for the big decline. Regulatory activity is one.
In September a New York judge ruled that tokens issued in ICOs are covered by securities law, which implied tighter regulation of issuers.
In the same month, the People’s Bank of China issued a warning about ICOs, reminding investors that tokens are inherently risky.
There is also regulatory uncertainty in the local market. A Treasury consultation paper released last month concedes that policy makers are unsure how to proceed with the regulation of ICOs.
Classification is difficult because a digital token might perform multiple functions at different times during a venture’s life cycle. In other cases, there might be a lack of detail surrounding a clearly defined business plan and the rights and obligations attached to an issue of tokens.
Considerations include how the token is marketed and how it is described, and whether the token is exchangeable for an established good or service.
“Growth in ICO issuance is testing regulatory frameworks around the world, compounded by the fact that arrangers of ICOs are choosing to issue from jurisdictions where regulatory settings are seen as most accommodating,” the paper says.
Crypto industry publication Hackernoon has forecast that mergers and acquisitions will dominate the ICO and blockchain markets this year, as funding continues to be hard to source and start-ups are forced to pool their resources.
Some M&A deals that have already been done include the cryptocurrency exchange Coinbase acquiring data company Blockspring, and another exchange Bakkt acquiring the crypto business of Rosenthal Collins Group.
Two digital banking start-ups EZ Advance and Alconomy have also merged.