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Insights Initial Coin Offerings (ICO): Beware the Hype.
June 29, 2020

Initial Coin Offerings (ICO): Beware the Hype.

In the year since then, we’ve seen an incredible surge in awareness and availability of cryptocurrencies, spurred at least in part by the value of a single Bitcoin surging to a peak of nearly US$20,000.

One thing that hasn’t changed much is the messy combination of excitement, confusion, opportunity and greed that continues to characterize the cryptocurrency space.

With initial coin offerings (ICOs) generating lots of buzz in recent months, we figure it’s time to address this development in the crypto world to explain what it is and why you should be wary of the hype.

H2: What is an ICO?

An ICO is a means of raising funds for a project, much like an initial public offering (IPO) is a means of raising funds for a business. But that’s where the similarities end.

With an IPO, a company sells shares in exchange for money, and those who buy the shares receive an ownership stake in the company. While rules vary by jurisdiction, an IPO typically occurs in a highly regulated manner, with mandated transparency in the form of a prospectus and clear recourse for buyers the event of fraud.

An ICO is an entirely different beast, as the tokens purchased in an ICO do not confer ownership. Instead, they give the buyer the right to a product or service that the issuer plans to offer in the future.

While many people buy into an ICO as an investment, betting on future appreciation of the cryptocurrency tokens, many issuers go to great lengths via fine print and disclaimers to avoid the ICO being portrayed as a financial security. Why? To avoid the regulatory burden – including the transparency and recourse – that comes with issuing a new security.

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