Much of crypto’s hype may be imaginary, but the losses are real.
The first quarter of 2018 brought startling losses to the crypto market. Bitcoin has, according to Coindesk, toppled from its $19,343 December 16, 2017 high to $6,926 as of March 31, 2018—a low not seen since mid-November 2017. Other crypto assets have endured sharp losses as well.
The decline is being felt by entrepreneurs looking to forego the VC scene in favor of initial coin offerings (ICOs). According to Crunchbase data, the first quarter of 2018 hasn’t exactly halted ICO activity. However, the previous boil has been brought to a (still hot) simmer.
A Big Deal Behind The Data
At the end of 2017, these virtual pages noted that, while ICOs have seen explosive growth, “the bubble could pop tomorrow, marking 2018 as the year HODL breaks.”
Using Crunchbase reported data, Crunchbase News charted the quarterly pace of ICO deals made and funds raised:1
Right away, it is clear that Q1 2018 missed on one metric: number of deals. Quarter-over-quarter, ICO deal counts decreased by a touch over 20 percent, falling from 143 deals in Q4 2017 to 114 deals in Q1 2018. Of course, one dip isn’t exactly indicative of a trend—especially in a volatile market such as crypto. And compared to Q1 2017, deals are still up substantially. Furthermore, when we turn to the money, ICOs are still on an upward trend.
In Q1 2018, ICOs raised approximately $3.9 billion—$860 million more than the preceding quarter. Yet the numbers begin to buckle under closer scrutiny.
While it’s not unknown for ICOs to attract huge sums of money, Telegram’s $1.7 billion raise is, even by crypto standards, quite a large lump sum of cash. This is especially true given the aforementioned decline the crypto market is experiencing as a whole. And it’s the reason the first quarter of the new year has something to boast about.
Without Telegram’s just-in-time ICO, funding in Q1 2018 would have only totaled to just a touch over $2.2 billion. That would have put Q1 2018 short of Q4 2017 by approximately $839 million. Still, even though Telegram’s ICO would have made even SoftBank’s Vision Fund blush, the deal happened and therefore counts. However, without Telegram’s record-setting, single-event ICO, Q1 2018 gives doubt to the narrative that growth will always be the crypto status quo. Widespread reluctance to be associated with the crypto community isn’t helping either.
Reigning In Crypto
Promoting anything related to crypto has become increasingly difficult. Nearly every major tech company has put an all out ban on crypto ads.
Facebook kicked off the trend on January 30th, 2018, when it announced that it would end all crypto-related advertisements. Over a month later, Google followed with its ban. (More recently, Google also banned Chrome extensions that mine crypto in the background.) And just a few weeks after Google, Twitter formally disowned, after some hemming and hawing, crypto ads on its platform. Collectively, these three companies essentially own the digital advertising market, and a ban from all three is a significant hurdle for the crypto community to overcome.
Furthermore, the SEC has shown increased interest in the activities behind ICOs. Crunchbase News previously reported that SEC chairperson Jay Clayton considers “the structures of ICOs… directly implicate the securities registration requirements and other investor protection provisions of our federal securities laws.”
And while the SEC has adopted a position of “do no harm” on blockchain tech, that doesn’t mean the federal agency is afraid to charge those behind problematic ICOs. Most recently, the SEC charged and arrested Sohrab Sharm and Robert Farkas for their allegedly-fraudulent Centra Tech Inc ICO.
Now, this doesn’t mean ICOs won’t have their place in the market as a funding method. But regulatory concerns, being banned from the world’s most popular digital marketing channels, and softening numbers in Q1 2018 don’t speak well to the market’s ability to sustain such astronomical growth.
That said, crypto, as a whole, has proven to be very good at volatility. For all our doubts, the next quarter could still bring in a massive influx of deals and dollars, making Q1 2018 look like a blip on the radar.
At least that kind of volatility will always ensure we have something to write about.
- Crunchbase added ICO tracking in 2017. The funding method’s nascency means that we are walking in new pastures. As such, we have a slightly lower levels of confidence that any single dataset is fully accurate when it comes to ICOs. Datasets (some of which we have used in reporting) can differ in terms of when a funding is recorded, and, say, in terms handling pre-sales to ICOs proper. Regardless, Crunchbase News checked Crunchbase data against other data sources (using only intervals when they appeared to be updated regularly) and found our results to be contentedly in-line directionally.