Cryptocurrency investors are raising a rapidly rising amount of money using a new vehicle known as Initial Exchange Offerings. IEOs, which have mostly replaced the formerly popular method of raising funds, are intended to avoid regulatory scrutiny while continuing to fulfill the apparently insatiable need for digital gold. According to crypto data tracker CoinSchedule.com, as reported in a thorough piece in Bloomberg, over $180 million has been raised in 23 offers in recent months.
Initial Exchange Offerings
- $180 million raised
- 23 offerings
- Users and token teams are in high demand.
ICOs Bubble Bursts
In contrast to ICOs, which provide digital tokens to investors directly, IEOs include a crypto exchange that acts as a middleman. Crypto exchanges serve as underwriters, taking up to 10% of entire sales revenues. “It has the potential to be greater than the 2017 ICOs,” said Bill Shihara, CEO of Seattle-based exchange Bittrex, which just staged its inaugural IEO, according to Bloomberg. “We’re seeing a lot of interest from both our users and token teams.” According to Bloomberg, the profits from ICO offers have decreased from $5.8 billion in June of last year to $208.6 million last month.
IEOs have aided in the recovery of the digital currency market, which has seen tremendous volatility in recent years, most notably with the fall of bitcoin in 2018. However, according to some industry analysts, IEOs are potentially risky owing to issues such as the difficulty to standardize screening across exchanges and ongoing regulatory uncertainties.
Former Securities and Exchange Commission lawyer Zach Fallon cautions that the increasingly popular method of obtaining cash in the digital asset industry takes “everything from an ICO and makes it worse.” According to Bloomberg, the design of IEOs, in which many exchanges require issuers to seek cash using exchange-specific tokens, makes the financing form more subject to regulatory scrutiny. Other concerns, including as fraud and a lack of due diligence, endanger IEO investors.
Nonetheless, the number of tokens produced by exchanges is rapidly increasing. According to Jeff Dorman, partner and portfolio manager at Arca Funds, tokens issued in IEOs are up 200% on average.
According to the Bloomberg Galaxy Crypto Index, which covers several of the top digital currencies, the rise in IEOs comes as crypto prices seem overbought once again. According to Bloomberg, the index is still down about 80% from its all-time high, after rising roughly 25% since the beginning of the month.
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