2017 saw explosive growth in the number of ICOs, as a revolutionary way to attract investment. This year 234 ICO projects have raised more than $3.7 billion, with the most considerable part of the total investment being attracted from May to October, according to Coinschedule. Experts believe that next year, however, this trend will decline and ICO market will face a significant reduction and restructuring.
Kaspersky Lab says that the number of successful ICOs will be noticeably reduced in 2018 compared to 2017, while most of the projects will remain without financing. Moreover, Vitalik Buterin—founder and leader of Ethereum—believes that 90% of current ICO projects will eventually crash. But this recession does not mean token market collapse. Only ICO structure and approach to market regulation will change. Investors will pay attention to things, such as fraud protection, an effective business plan, a clear strategy for its implementation, transparency, and organizers' compliance with the regulatory framework.
According to Jerry Brito, Executive Director of the nonprofit organization Coin-Center, governments will increase control over token sales. This year the US Securities and Exchange Commission (SEC) said that the virtual coins or tokens that are offered or sold might be securities. If they are securities, the offer and sale of these virtual coins or tokens in an ICO are subject to the federal securities laws. In this regard, the SEC filed charges of scam and non-compliance with the legislation against several ICO organizers. Brito thinks that other countries, which are going to take anti-scam measures, will follow the US example.
"The need for token sales to comply with SEC rules, combined with investors' desire for greater confidence, may lead to a new trend. In 2018, we'll see the emergence of platforms for the offering of new tokens that will better qualify the tokens before they're allowed to be sold, and will help investors make better judgments about them."
Brito predicts that initially, these platforms will only be open to accredited investors.
"So, as the industry professionalizes, we may perceive that the ICO bubble has burst. In fact, a slowdown would indicate that there are simply fewer scams. As a new funding model, ICOs are here to stay."
Oliver Bussmann, founder and managing partner at Bussmann Advisory, the president of not-for-profit Crypto Valley Association and former group CIO and managing director at Swiss financial holding UBS, firmly believes that the world of ICOs will become more mature in 2018 as more traditional players get involved. As a result, they will invest their IPO experience and expertise to develop a new market and the whole business will stick to a better structured and more professional model of attracting investments.
"Over the next 12–18 months, I expect there will be ICO's attributes, such as book building, pricing, startup evaluation, and so on. As we've already begun to see, it will be harder to get funding simply on the back of a white paper. Investors will demand sound business plans and high levels of transparency.”
The head of the technical department at Ripple, Stephan Thomas agrees with the arguments above, according to his post at Quora (social platform of knowledge sharing). He sees a lot of parallels between the ICO wave today and the altcoin wave of 2014. In this regard, the initial hype will give way to a more realistic and balanced ICO; many ICOs will have to change their approach to attract investment. Mark Lurie also believes that next year there will be a lot more institutional capital that will all go to the highest quality projects.
“There will be a shakeout in ICOs and a flight to quality. There will be a proliferation of ICOs where a few will go bust. There will be a lot more institutional capital that will all go to the highest quality projects. That's what happened during the financial crisis with venture capital and growth equity rounds, too. Most companies could not raise any funds, but those that could raise funds did it at really high valuations.”
In 2018, the smartest move on the part of companies making ICOs and Bitcoin-related products will be to wean the public and the media off the "digital cash" concept, as Wired reports. It's a metaphor that no longer makes sense, and it's getting in the way of our proper understanding of a new technology that looks like money but really isn't. But ICO participants will have to make enormous efforts to change the image of the industry. William Mougayar, a well-known Canadian Investor, entrepreneur, and author of several blockchain books, states that the current ICO market and tokens attract the wrong players.
“Not only is Token 1.0 attracting the wrong types of projects, but it is also attracting the wrong types of people who see opportunistic gains from spinning a currency, raising from the crowd and promising the moon, with little accountability to be held against. First and foremost, we must revisit and apply the basic innovations of the blockchain. Then we need to assess token functionality critically, without over-engineering the token capabilities. We need to put the blockchain back into the equation, and not the token”.
Vitalik Buterin says about a new kind of tokens as well. He is sure that in 2018–2019 a new type of tokens, ICO 2.0, will appear for more mature ICO market.
“There are some good ideas, there are a lot of terrible ideas, and there are a lot of very, very bad ideas, and quite a few scams as well. I expect that tokens 2.0 and the kinds of things that people will start building in 2018 and 2019 will, in general, be of substantially higher quality. Especially once we start seeing what the consequences of the first wave of tokens are in the medium-to-longer term.”