Since September 2017, the race to regulate blockchain startups has been in full mode. China was the first country to ban ICOs and South Korea followed suit barely two weeks later. The UK and the US also offered strong warnings about investing in ICOs. Nowadays, countries all over the world are competing to regulate the often unpredictable industry. But what are the benefits of regulating the industry?
How Companies Treat ICOs?
Not everyone is opposed to ICOs – the unique financial model that enables cryptocurrency startups crowd fund while offering investors potentially valuable tokens. Countries like Venezuela already held an ICO and launched a state-funded crypto coin. Switzerland and Estonia have often welcomed ICO startups.
A few more countries welcome any business willing to pass a few regulations. Some countries have embraced the ICO idea as long as the startup can qualify through their regulations.
The Securities and Exchange Commission (SEC) has often published documents warning investors about ICOs. SEC stands for the idea that ICOs are highly risky investments where investors stand to lose all of their funds. However, ICOs are still held in different US states.
Like SEC, Russia also published a warning to investors thinking of investing in ICOs. The Russian Central Bank took a stand against ICO startups, warning that it would not endorse any such project. However, the Russian Central Bank does not control financial regulations.
Like the US, the UK has published warnings to investors about the dangers of investing in ICOs. While ICOs are not totally banned, the UK is keen on startups holding ICOs. In the future, the UK is likely to issue final directives about using ICOs as a means to fundraise.
As a growing financial hub, Singapore is embracing the idea of ICOs startups willing to follow the country’s set out regulations. The Monetary Authority of Singapore already announced it would be regulating initial coin offerings. In a statement published in mid-2017, it is claimed that the Singaporean authorities will regulate almost every ICO that wants to be registered in the country.
Except for a few countries where ICOs are totally banned, most countries are willing to welcome startups on certain conditions. But what’s the effect of ICO regulations?
Benefits of Regulating ICOs
Scam ICOs will reduce
Where ICOs are regulated, registered and certified, there are a few scams. In the US, for example, where startups are regularly monitored, there are hardly any scams that succeed. All ICO startups are closely monitored and founders arrested if found guilty of attempting to dupe investors.
By contrast, there are full of cons in most countries where ICOs are unregulated. Prior to banning ICOs, for example, China accounted for nearly 70% of all scam blockchain startups. After their ban in September 2017, no ICO has attempted to seek funding in the country. Of course, China’s blanket ban is not what investors wished, but it proved scam activities can go down with a proper regulation.
ICOs Will Become a Mainstream Idea
Outside of the cryptocurrency industry, a few people ever talk about initial coin offerings. Except for bitcoin which is increasingly attracting media attention, many cryptocurrency startups struggle even for media attention. One reason for this is that media press is given to cryptocurrencies and ICOs focuses on the negatives.
Regulating the cryptocurrency industry is a sign that countries and governments are looking on the positives. And this would reduce negative press. With more ICOs being allowed to run like mainstream companies, startups would raise much more money than they currently do.
Not everyone is exactly happy about regulations though. Blockchain was supposed to be a decentralized technology. Any form of regulation takes away that feature from it. Nonetheless, there are signs that the ICO industry would go bigger with some regulation.
Huge Institutional Investors Will Increase
Institutional investors like banks tend to stay away from ICOs. It is easy to point out why. ICOs and the blockchain industry, in general, are highly unregulated. Investors mainly make money through speculations. One day a token could be worth $50, the next day it’s worth pennies. When private investors try to decide what cryptocurrency to invest in, no institution is willing to stake investors’ funds on such a program.
With regulations, however, operations about ICOs will become open. Liquidity will increase as huge investors get interested. The high inflation rates currently being experienced in the industry will reduce. Startups will earn more money and so will investors when they invest in the right project.
The Industry’s Reputation Will Grow
The ICO industry doesn’t have a good reputation in the mainstream media. People all over the world do not trust cryptocurrencies or ICOs as genuine financial models. But all that would change with proper regulations. If governments begin embracing ICOs, everyone else will follow suit.
The ban of ICOs in China and South Korea tarnished the industry’s name for a while. The blockchain industry by extension was also not spared. People still think these industries are only good for enabling drug dealers and cybercriminals. With proper regulatory framework, however, the industry’s reputation will improve. All manner of investors will look at the industry as an alternative investment idea rather than a scam.
Disadvantages of Regulating the Industry
Cryptocurrency Prices Will Drop
The ICO industry was supposed to be one place where governments have no authority. The blockchain industry became popular because of the same reason. If governments step in with all manner of regulations, investors will go back to investing in IPOS. There will be no point of investing in a risk-filled industry whose mission is no longer clear as well.
The trend is already happening where governments are so strict about cryptocurrency investments. With China banning almost everything about the industry, Chinese investors have gone back to investing in stocks and regular markets and it’s hurting the prices of cryptocurrencies big time.
To sum up…
To prevent scam startups, there is a need for regulations. However, it doesn’t have to come from governments. Industry leaders are of the opinion of self-regulation. If properly executed, the industry regulating itself will avoid negative press and constant monitoring by the government. Better yet, investors could continue embracing the industry.