ICOs in Southeast Asia and beyond

With Bitcoin came cryptocurrencies, and with cryptocurrencies came ICOs. The ICO, or ‘Initial Coin Offering, is way by which funds are raised to start a business or generate funds to help cash-strapped businesses. Bypassing the traditional Venture Capital sector, ICOs are able to generate hundreds of millions of dollars quickly—last year alone raising $2 billion USD.

The business takes the funds in exchange for a new type of currency, cryptocurrency, created and backed by the business. If the business is successful, the coin should increase in value. So what’s the problem? This is largely unregulated territory and a lot of people are scamming investors with volatile ‘coins’ and bogus business plans.

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Problems facing today’s ICOs

People with a gold-rush mentality are buying in and trying to get others to buy too, in hopes of driving up prices. And there are no regulations on the currencies, the businesses that issued them, or the currency traders. In short, there is no Securities and Exchange Commission or Treasury Department to prevent or mitigate financial crimes. In reality, many issuers are getting rich and investors are purchasing coins that may or may not have any value.

So why the dilemma? It simply has to do with the Greater Fools Theory–that someone less informed will pay more money for the coins in question than the value at which they were bought. Then early investors and their friends will make money from the sale of a commodity that is driven upwards by “irrational beliefs and expectations of market participants.”

So what if all coins were stable? Then there would be an exodus of speculators who depend on market volatility to increase a coin’s value. A ‘pegged coin’ or coin that was stable, in fact, would not change in value except on the basis of the underlying asset (the issuing business) that backed the coin.

When it comes to ICO challenges, it’s all about regulations. Here are three of the top challenges, ICOs are currently facing.

Whiplash by the Securities and Exchange Commission

In 2017, the Securities and Exchange Commission announced that it will treat all coins as securities if they look to be such. Therefore, new coins are now treading on very tepid waters and would-be investors are more cautious than ever.

Security issues

Without regulations, ICO’s are more vulnerable to con-artists and fraud. A person can simply make up a coin and push its value through the roof, tipping off friends, and then liquidating it for all it’s worth.

A volatile crypto-market

In January 2018, Bitcoin fell 18% and Ethereum 23%. The fact is, more regulations are likely to decrease volatility in the cryptocurrency market globally, with countries like South Korea, Russia, and China leading the way with strict policies and restrictions. This will ultimately decrease the drastic swings in the market that appeals to many traders. This is the trend.

An overview of ICOs in Asia

While countries like Russia, China, and South Korea are currently looking at how to control and use cryptocurrencies, other countries, such as Indonesia, Thailand, and Singapore, are increasingly interested in ICOs. In one month alone, Thailand approved five ICOs out of 50 contenders. This is because Thailand views cryptocurrency trades ‘on par with other digital asset markets.’

Thailand

In Thailand, this is how it works: An ICO issuer first must get approval from Thailand’s Capital Market Authority (the equivalent to the USA’s Securities Exchange Commission). After this process, the Thai government will take about two months to review the offering before approving it. According to Bitcoin.com News, the two criteria are as follows. “They must have registered capital of at least ฿5 million baht ($156,000 USD). Retail investors can invest no more than ฿300,000 baht ($9,343 USD) or no more than 70% of the total value of tokens offered.” However, these limits do not exist for high net-worth and institutional investors.

Indonesia

Initially used by tourists in the Bali area of Indonesia, cryptocurrency was cracked down on at first, but then accepted by the government. Currently, the government is looking to regulate the cryptocurrencies once a better understanding is gained. Indodax works as their main exchange. It is slated to have 1.5 million buyers and sellers by the end of 2018.

The Philippines

As of April 2018, the Philippines began to allow 10 blockchain and virtual currency companies to operate in an economic zone to take advantage of tax breaks. A currently popular local ICO is Energo Labs, which uses blockchain to decentralise Energy in the Philippines.

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The first ten foreign cryptocurrency operators allowed into the Philippines came from various countries, including: Japan, Hong Kong, Malaysia, and Korea. Like Thailand, the Philippines also imposes regulations for investors that maintain that investors should put down $1 million USD over two years and pay annual license fees of up to $100,000 USD.

Singapore

Unlike the Philippines, Thailand, and Indonesia, cryptocurrency was never seen as a threat in Singapore. Koinalert.com reports that tax regulators look at Bitcoin, and similar currencies, as goods not money. In addition, ICOs are treated as securities by Singapore’s Monetary Authority. Among Singapore’s ICOs is PolicyPal Network, which uses blockchain to increase universal access to insurance.

What can we expect?

So, what’s the future of ICOs in Southeast Asia and beyond? Though it’s hard to guess anything surrounding the future of such a compelling, new technology as blockchain, we are certain of several things.

First, the future of ICOs will evolve in a regulated ecosystem. Second, the problem of ‘pump and dump’ ICOs that raise millions and then disappear will be addressed. In terms of what the future of ICOs will look like in form: We are guessing that it will not be too different than what the New York and London Stock Exchanges look like today.