While a number of countries, including China and South Korea, have clamped down on ICOs and tried to regulate the token industry, the fact remains that it is still the Wild West of investment and helped create a twenty-first century Gold Rush for naïve investors.
A lot of investors might not like how the U.S. Securities and Exchange Commission (SEC) has yet treated the Cryptocurrencies and kept on delaying token-based ETFs from entering the market. However, at the end of the day, the SEC is there for a reason as its sole purpose is to protect retail investors from insider trading and other Predatory trading schemes.
Latest Evidence Raised Serious Concerns About the Token Economy
Earlier today, a Reddit user going by the online nickname of AsleepInstruction8 posted a disturbing post explaining from his own explains that how the lack of regulatory oversight in the ICO and token industry has caused ordinary investors to fall prey to age-old investment scams such as insider trading.
The Reddit user claimed that he worked for an ICO crypto company and saw coworkers buying tokens just before good news would be released or they would do the exact opposite and sell the ICO tokens before releasing bad news regarding the company.
Such acts of self-preservation fall under the purview of textbook insider trading if it was done in a publicly traded company listed on any major stock exchange. However, since the SEC does not regulate the ICOs, such behavior goes unnoticed all the time.
The accusations did not stop at insider trading. AsleepInstruction8 went on to claim that the founder of his company lost 90% of the $20 million funds it raised from ICOs by spending on parties, paying for the expenses of the spouse, and spending funds to build software that had nothing to do with the published Whitepaper of the ICO.
Surprisingly, according to the Reddit post, the advisers of the company never raised any red flags because almost all 20 of them only got paid to put their name in the Whitepaper to make the company legitimate and they never bothered to participate in the operations.
Take the ICOs with a Grain of Salt
While there are real companies with real products that raised serious amounts of money via ICOs, there are a lot of dubious investors with no real experience running businesses saw an opportunity get-rich-quick by getting funds from ICOs. However, as jeffthedunker, claiming to be a freelance writer involved in writing content for a number of ICOs wrote in the thread: “it’s not too difficult to vet the good from the bad.”
If you do your homework and investigate the people involved in the ICO and check their prior work history and reputation, finding good ICOs that has the potential to disrupt industries will not be a hard task.
However, according to Fundera, “20% of small businesses fail in their first year, 30% of small business fail in their second year, and 50% of small businesses fail after five years in business.”
So, even if a company really wants to build a real business, there is a good chance that its actual product may not be as effective as the founders of the ICO initially thought.
Investing in ICOs have always been a risky endeavor and most retail investors are not savvy enough to analyze the real-world application of a company’s product and viability of the business model, reputation of the founders, and have a holistic approach to investing in an unregulated industry.
The Reddit post from jeffthedunker, if true, would only reconfirm what industry analysts have been saying for a long-time that ICOs are serious business as a long list of ICOs has raised millions of dollars. However, a lack of regulatory oversight has exposed many new investors in believing that they are getting into the ground floor of a company, while they end up spending their nest eggs running after a mirage.