Regulation Enables, Not Stifles, ICO Innovation

ICO News, Investing, News, Regulation | May 17, 2018 By:

The cryptocurrency space prides itself upon a decentralized, self-policing ethos. But, with the rampant abuses practiced by several ICO operators in 2017, regulatory intervention in the space is now a given.

Two schools of thought are emerging: The first is sticking hard and fast to the original spirit of self-regulation, resisting intervention and, in some cases, even thumbing their nose at authorities. Conversely, there is a very small but emerging group of participants that have decided to work constructively with regulators to bring their ICOs to the marketplace.

If cryptocurrencies and ICOs were designed to avoid a regulatory structure often seen as rigid and overbearing, why would this new group of ICO operators want to work with regulators? It’s simple — cryptocurrencies are on the cusp of widespread adoption and, at this stage of growth, regulators truly have the power to stop the market dead in its tracks.

These operators recognize this, and they also share a belief in the power of cryptocurrencies to transform everyday lives. To elevate digital assets from their existing paradigm of early adopters, tech evangelists and speculators into mainstream adoption, stronger oversight and a maturation of the market is necessary. The long-term success of ICOs will ultimately rely on the efforts of companies operating under regulatory frameworks.

One thing needs to be made clear  – no company, even this small group of operators, wants to bring on more regulation than necessary. Regulation is costly, especially from a legal and compliance perspective. Too much regulation can be stifling. And there is something to be said about how the decentralized, self-regulated approach of cryptocurrencies and blockchain has forced static industries to rethink their models.

Yet, the upsides of ICO regulation well outweigh the downsides. Regulatory approval is, in effect, a seal of legitimacy. Right now, there is a lot of institutional money on the sidelines eyeing cryptocurrencies, but unwilling to move until regulators give the thumbs up. Collectively, this money and the gravitas of these brand-name investors have the power to propel cryptocurrencies to new heights.

Regulation will also enforce transparency. This seems redundant given that the cryptocurrency space is built on the concept of transparency, but nearly all of the companies who have done an ICO to date have been anything but transparent in the months that have followed. If you’re a crypto investor, you know that there are no earnings calls, quarterly reports, or anything to provide the market with signs of progress. For a healthy, mature marketplace to emerge, investors need access to this information to know whether they can continue to have confidence in a project or whether they need to exit. Institutions will most certainly wait for companies with this post-ICO transparency before placing their capital with them.

And contrary to popular belief, regulation will spur innovation. Here’s why – regulatory frameworks sets the boundaries under which ICOs will operate. Everyone will work under the same rules. When this aspect of the playing field is level, companies will be forced to find new ways to innovate. Generous pre-ICO schemes (often run by companies with no real intention to follow through on their plans) will lose their power. Companies will come to the table with stronger business models and a genuine need to stay one step ahead of competitors.

Furthermore, regulation brings an air of consistency and predictability. Few will be blindsided by sweeping rule changes. As more countries follow, regulatory arbitrage will die off – and fewer companies will be treated favorably. With the regulatory guidelines set, companies will be free to grow as they wish. Every company should look to have this certainty and be assured an even playing field against other companies in their respective space.

In an ideal world, we wouldn’t need regulation. But the reality is, fraudsters exist. Thus, regulators protect consumers and investors from those that seek to harm them. This emerging  generation of ICO operators understands this and knows that regulation is inevitable. Yet, they also see that it is necessary for the cryptocurrency market to realize its potential.

We count ourselves as one of these believers in the potential of regulation and the power of ICOs to propel the growth of new technologies. Our call to the rest of the space is: be pragmatic. Let’s forge ahead with the regulators by our side, instead of fighting them tooth and nail, so that they help, not harm us.