The recent flurry of initial coin offering (ICO) announcements could herald a funding revolution. Or, a significant increase in risk. In a CoinDesk opinion piece, author and investor William Mougayar warns of the hidden dangers of the current ICO market.
On the surface, they seem like IPOs with cryptocurrency. However, Mougayar shows how they are increasingly becoming volatile investment vehicles detached from the fundamentals of the project.
He argues that investors tend to purchase ICOs, or blockchain tokens, without having done in-depth due diligence on the underlying business. Marketing hype plays a strong role in the initial performance, and sets up unrealistic expectations of utility. He also believes that the advent of ICO funds is a sign that the market is getting overcrowded, which will exaggerate volatility and risk.
Furthermore, Mougayar points out that the risk to the startup also increases. He believes that the format can limit future growth, as the financial engineering usually complicates further issuance. And due to the youth of the concept, blockchain tokens still operate in a legal gray area, with limited protection for investors and issuers.
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