Per a report by the Wall Street Journal, money raised by Initial Coin Offerings has dropped over 58 times in Q1 of 2019. In 2018, $6.9 Billion was raised by ICOS in Q1 as compared to a mere $118 million.
The bearish market scenario has left investors in the lurch. TokenData, a crypto analytics firm cited that only 15% of tokens issued in successful ICOs are trading at their original or higher price. The report further mentions that of the 2,500 projects that TokenData tracked since 2017, only 45 percent successfully raised money.
With ICOs suffering major losses, the market for digital securities doesn’t likely share the same plight. Nowadays, security token offerings (STOs) are receiving increased attention from the government as well as private sector regulators.
In February, the United States Securities and Exchange Commission (SEC) charged crypto firm Gladius Network with selling unregistered securities after the company self-reported to the commission.
Japan’s Financial Services Agency (FSA) is the sole regulator which has led the movement for regulating digital assets. Additionally, the same can be considered for the regulations guiding the exchanges on where and hows of trading assets.
Moreover, if a company has an intent to offer its services in the crypto/blockchain arena, it must strictly adhere to “Under the revised Payment Services Act” after registering with FSA.
According to a recent Reuters report, many cryptocurrency exchanges are using the backdoor approach to penetrate crypto markets in certain regions. They try to make a successful entry by purchasing a share in a public company which has been previously listed.
This, in turn, helps them avoid regulations and gain mainstream approval. Additionally, the company gives the exchange a promise to help them gain acceptance.
In January, OKC Holdings, founder of crypto-exchange OKCoin, purchased 60.5 percent of LEAP Holdings, a Hong Kong-listed construction firm, for HK$484 million ($61.69 million). Also recently, U.S. crypto broker-dealer Voyager Digital managed to get a “backdoor” listing on Toronto’s Venture Exchange. This was after it gained control of mineral exploration firm UC Resources.
Media houses also highlighted that these purchases also known as reverse mergers enable companies to offer their share to the public. Subsequently, the buying company avoids check which would have been done during an Initial Public Offering( IP0). In addition, to being subject to regulations by financial regulators.