ICOs Becoming Less About Masses, More About Whales

One of the benefits of ICOs is that it allows the little guy to invest in groundbreaking projects, but lately, the whales have started taking over.


One of the key aspects of cryptocurrency is decentralization. Distributed ledger technology and virtual currencies allow people to gain control of their economic actions. One of the highlights of this incredible technological revolution is that the average person can invest in some major projects via ICOs (initial coin offerings). However, things are changing as the little guy is starting to get squeezed out.

ICOs Are Booming

It is fascinating to see how ICOs are taking off this year. In 2017, there were a total of 222 projects that raised a total of $3.7 billion. That’s a drop in the bucket to the whopping 709 projects that have raised $17.7 billion so far in 2018.

To be honest, ICOs are a great way to raise revenue. It cuts out the middlemen found in traditional finance and allows people to directly support the projects they care about. Even better is the potential financial reward if the project’s coins appreciate in value.

The best feature of initial coin offerings is that most people could take part in them. While most ICOs are brutally fast, akin to the Oklahoma Land Rush, there was always the real possibility of snagging some coins for yourself. The main issue was the potential investor’s location as many countries have specific laws and regulations that pertain to ICOs.

Whales Starting to Dominate

However, it seems that the era of the little guy getting to invest may be drawing down. A lot of projects are starting to move to private sales where only the wealthiest of individuals can take part. A perfect example is Telegram, which raised a total of $1.7 billion. Such was the success of their private sales that a public sale was scrapped. One of the rounds for Telegram only allowed people willing to spend a million dollars or more to participate.

Projects are taking note of this influx of capital from whales. As the co-founder of Tel Aviv-based Orb, Uriel Peled, notes:

If you can raise money in the private sale, today it’s the best kind of ROI [return on investment] for the company because it comes with the least uncertainty and the least risk for regulations.

Overall, 37 percent of new projects offered private pre-sales, and a full 18 percent of all ICO funds raised came from private sales. While a majority of funds raised still come from public sales, these numbers do show that institutional investors with deep pockets are moving in.

There are a few reasons why the mom-and-pop investor is getting squeezed out. Private sales can circumvent regulatory issues, such as in the United States. This allows projects to ignore any potential headaches caused by differing investment laws based upon the investor’s country of origin.

Another reason is that institutional investors smell the possibility of money being made, so they’re entering the cryptocurrency sphere in greater numbers. Exchanges like Coinbase are rolling out specialized support for such investors, who have very deep pockets. An increasing amount of cryptocurrency hedge funds and venture capitalists are spending a ton of money on ICOs.

To be honest, you can expect this trend to continue. Increased governmental regulation and a greater number of institutional investors equals the little guy getting increasingly squeezed out by the whales. It may be that decentralization may end up looking a lot more like traditional investing than cryptocurrency enthusiasts expected.

Have you been shut out of an ICO due to private sales to whales? Let us know in the comments below.


Images courtesy of Shutterstock.

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