ICO funding soars above $4 billion as US regulators crack down

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Christian Petersen/Getty

  • The initial coin offering market has surged over $4 billion, according to new data from Autonomous NEXT.
  • Regulators are increasing their oversight over the red-hot space as the market continues to attract traditional Wall Street firms.

The red-hot market for cryptocurrency fundraising continues to reach new heights even as US regulators intensify their oversight of the nascent digital-coin market.

New data from fintech analytics provider Autonomous NEXT shows the amount raised via initial coin offerings (ICOs) has surged above $4 billion for the first time. ICOs, a cryptocurrency twist on the initial public offering process, have been around for years but have just entered the mainstream in 2017. Celebrities have played their part in hyping up the space, with entertainers from Paris Hilton to Floyd Mayweather Jr. promoting ICOs for some companies.

The Securities and Exchange Commission is also just starting to pay attention to the fundraising method, which is known for its fair share of fraud, intense marketing, and big dreams.

“The world’s social media platforms and financial markets are abuzz about cryptocurrencies and initial coin offerings,” SEC chairman Jay Clayton said in a statement Monday. “There are tales of fortunes made and dreamed to be made.”

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Autonomous NEXT

A recently created unit by the SEC has started digging into ICOs, halting two this month.

PlexCorps, one of the halted companies, “falsely” promised over 1,000% returns for its ICO, the SEC said.

The regulator’s main concern is that ICOs provide a way for companies to solicit money from small-time investors without disclosing the proper risk.

And there’s a ton of risk in the space. Most companies solicit money from investors before creating a working product. And even some of the more visible and respected firms running initial coin offerings have failed. Tezos, the company behind a more than $200 million ICO, is completely falling apart because of internal management issues.

These developments have put pressure on the market, according to Lex Sokolin of Autonomous NEXT.

“It is harder than before to get funded, so on average the market is cooler towards any particular project,” Sokolin told Business Insider in an email. “But overall, ICOs are becoming more mature, both in operating models, code and regulatory approach.”

Still, some traditional financial services companies are diving into the market in search of big returns.

Typhon Capital Management, a Florida hedge fund that specializes in commodities, is launching a cryptocurrency fund at the beginning of 2018 that will invest in ICOs. James Koutoulas, CEO of the fund, told Business Insider he expects to raise $5 million to $20 million for the new fund.

“We now feel comfortable taking investors money and putting it into this space,” Koutoulas said.