Few Tokens Are In Use After An ICO, Raising The Risk For Investors

Cryptocurrencies like bitcoin have been all the rage this year, ushering in a frenzy of initial coin offerings, otherwise known as ICOs. But while startups have been raising serious cash via these ICOs, Bloomberg has found that not many of the tokens remain in use after the fundraising.

Citing Token Report, Bloomberg revealed news that about one out of ten tokens issued in ICOs are in use following the sales. Token Report looked at 226 ICOs and found only 20 are used to run their networks. The rest are only for trading purposes and are considered speculative instruments, Galen Moore, CEO of Token Report told Bloomberg in an interview.  

This trend should be worrisome, given investors have put more than $3 billion in the more than 200 ICOs in this year alone. September was the busiest month for ICOs, with 37 offerings raising close to $850 million. What’s more, according to Bloomberg there are more than 1,000 digital tokens out there.

Because of the low rates of the coins actually being used, Moore warned startups could face increased regulatory scrutiny.

“If the coin is regulated as a security rather than a utility, that limits how it can be traded and raises questions about whether developers are prepared to comply with securities regulators,” Moore explained to Bloomberg.  

The new data comes at a time when all countries are beginning to regulate cryptocurrency, warning about the risks associated with ICOs. While some regulators are starting to look more carefully at ICOs, others like China and South Korea are banning them outright.

Just weeks after China banned ICOs, South Korea announced in late September that it is following suit, with its regulator stating that ICOs for bitcoin and other cryptocurrencies are pushing the market into a “nonproductive speculative direction.”

Several regulatory bodies, including those in the U.S., China, Hong Kong, Singapore and Russia, have warned that a lack of regulations has made ICOs popular with scammers.