The market for ICOs is still going strong. Despite the fact that global authorities, both public and private, have done what they can to curb the growth of ICOs, it is estimated that they raised more than $13 billion USD in 2017 and Q1 2018.
Now the Wall St. Journal (WSJ) has come out with a story that states that nearly one-fifth of ICOs raise “red flags”. By that, they mean that many ICO’s could be fraudulent and just be looking to fleece investors. They cite things like the absence of a corporate address or lack of transparency in the offering.
There is little doubt that there will be some amount of fraud in a market that is free from regulation, and selling a product that has the allure of the cryptos that made numerous millionaires practically overnight. But as Zhao Changpeng, CEO of Binance points out, “Scams exist everywhere, in every industry.”
The WSJ is a long-standing mouthpiece of the established US financial system.
Today, a new market is sucking up a lot of investment money and that fact is probably worrying the major players on Wall St. Banks like Goldman Sachs and Morgan Stanley may be thinking about all those billions that could be flowing through their fingers.
Banks really don’t like competition, and the kind of investment model that ICOs engender totally removed major investment banks from the entire equation.
When a company goes public, investment banks win many times over. Not only do they get to charge the company huge fees to take their equity to market, they also get to buy the shares up on the cheap, and sell them off as they rise after the trading begins.
Taking companies public is an amazing business model, and when people realize that DLT-based technology make it far less attractive, the big Wall St. banks have every reason to worry.
Like any idea, it is very important to consider the source of the information. Possibly the biggest black eye in Wall St’s recent history is the Bernie Madoff scandal, and according to Harry Markopolos, the WSJ wouldn’t take the crooked con man to task.
Mr. Markopolos alleged, while under oath in the US Congress, that he communicated for years with an investigative reporter from the WSJ, only to have the editorial board in New York kill every attempt to expose an obvious fraud.
In fact, this isn’t the only time that WSJ has participated in a fud-attack against the crypto community. Early May 2018, the WSJ published a false rumor that the SEC would be conducting a hearing about whether ether would be considered a security or not.
More recently, the WSJ ran an ‘exclusive’ story that detailed how YouTube megastar PewDiePie has Nazi leanings. Two WSJ reporters had to sift through thousands of hours of video in order to find a few minutes of PewDiePie doing comic material that some might find offensive. If a person has never been exposed to Mel Brooks’ “The Producers”, perhaps PewDiePie’s antics could be seen as insensitive.
But why is the WSJ looking to smear an up-and-coming personality with ridiculous accusations?
Perhaps it is the same reason they are making a big deal about potential fraud in a popular new market and asset class. The old models are being left behind, and it is happening at a frightening pace.
Brave New Capital Formation
Of course, there is fraud in the ICO market. With all the money that is being thrown around and a near total lack of regulation, there is bound to be some unscrupulous activity.
But as Zhao Changpeng remarked, “I still receive phone calls and SMS telling me I won a grand prize, but I need to make a bank transfer to someone first. Does that mean we should stop using phones, SMS, and banks?”
The answer is clearly no.
It is worth remembering that in the Venture Capital market around 70% of the companies go bust within three years. New businesses are dangerous, new markets are doubly so. People that do their homework will probably do better than those that don’t, and people who believe in fairy tales aren’t likely to do well at all.
For example, believing that an investment manager could deliver double-digit returns every year for decades seems pretty suspect, no matter how well he (Bernie Madoff) was connected to the Wall St. power structure.