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Cryptocurrencies, Regulations and ICOs

While thoughtful, enabling regulations can help the market grow, a brashly curtailing evolution of the same has the potential to kill the market.

This is the second in a series of articles on Initial Coin Offerings (“ICOs”). First being an article on how we plan to do our ICO?

NOTE 1: This is the stage where distinctions and definitions are coming from the Crypto Industry rather than the regulators. The three broad categories/stands we have witnessed thus so far in the regulatory landscape are:

  1. Extreme Resistance (for example, China)
  2. Strict, Cautious & Open (USA)
  3. Open & Friendly (Switzerland)

NOTE 2: While tokens can be perceived to be means to just raise capital with no subsequent value creation for investors, the tokens also serve a bigger purpose for companies in categories (2) and (3) with two popular classification into:

  1. Security Tokens [Investment Contracts]
  2. Utility Tokens [Consumptive in Nature]

There are also tokens which exhibit both the above classification properties, its noteworthy these categorisations may vary with countries and consequently changing regulations.

NOTE 3: Here are the major developments from the crypto world in 2018 which can be grouped into three buckets (below):

  1. Regulations
  2. Liquidity, i.e volumes traded and
  3. Fiat-on ramp, i.e interoperability between fiat and crypto currencies
Developments from the Crypto World

NOTE 4: While earlier Larry Fink (CEO of BlackRock, BlackRock is the 10th-largest hedge fund by assets under management $28.6 billions of USD) called Bitcoin the “Index of Money Laundering”, the news of 16th July that BlackRock was looking to foray into BTC ETFs made Bitcoin jump.

ICO regulations in the G20 Nations

NOTE 5: With different kinds of regulations evolving around ICOs, and another interesting development in the form of world’s first ICCO, Initial Convertible Coin Offering happening just 5 days back in Malta led by Palladium, the future of ICO’s as a capital raising tool looks pretty interesting, although much is still left to be seen .

ICCOs seem a logical innovation but has many disadvantages just like many financial engineering products before, arming the investors with an added optionality of converting tokens into company shares, and hence bridging the gap between cryptocurrencies and traditional finance, while providing investors equity or stake in the company.

While caution is logical at this point in time, hopefully we shall begin to see regulations which positively impact ICOs in the future, helping investors easily identify fraud and make more informed investment decisions.

Looking forward to, and welcome your views in the comments below.

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