Considering an ICO? Then read this

The price of the cryptocurrency in the Southern African nation jumped as high as US$13,499, almost double the rate at which it trades in international markets, according to prices cited on Golix

INITIAL coin offerings (ICOs) are still the rage despite some regulators coming down hard on them and big names talking them down as just a big bubble or scam. The ICO euphoria is likely being fueled by the fact that despite all the negative news surrounding ICOs and cryptocurrencies, the price of bitcoins have kept soaring.

Hence companies (and entrepreneurs with a business idea, half baked or not) are considering launching their ICOs. And why not. You get to raise money sans all the laborious securities laws that come with taking a company public.

But is it that easy? Here’s the thing to note. Assuming that you belong to the "wild west" of this blockchain era -- these are the people who believe that a crypto currency like bitcoin will replace all fiat currencies and central banking authority -- you will have some challenges. 

For starters, who is going to promote your ICO and who is going to buy into it? Interestingly, this possibly explains the presence of some “ICO advisers” at this week’s Fintech Festival in Singapore, reportedly the world’s largest fintech gathering. This writer even had the good fortune of bumping into a US-based consultant who called himself an ICO investment banker, but with a namecard of an unheard of entity that didn’t at all resemble any traditional investment bank. 

For sober markets like Malaysia and Singapore, the regulators’ stance is clear. They are not outlawing ICOs but making a simple statement: if fund-raising is your main objective, then please take note of existing securities laws, which have been built and refined over a very long time. 

What gives tech companies the right to all of a sudden bypass that? The Malaysian regulator has made an effort to legitimise platforms offering equity crowdfunding and peer-to-peer lending. There is also the recently launched Leap Market. So the regulator is merely saying, why aren’t you looking at these options first? 

But that is not to say that ICOs are banned in totality. 

Those who have a deep understanding of blockchain technology and the problems it can potentially solve (I’m just at the beginning of this curve) will explain to you that there is a need for a new token created in that network, to sort of "power up" that blockchain. 

So for starters, a decent ICO candidate would be one which has already launched a a new platform that’s already running and showing some level of take-up, namely making some process more efficient and thus saving cost. The next thing to show is how a blockchain powering this process will take it to the next level and in order for that to run even more efficiently, for there to be a token. 

Fund-raising must not be the main reason for the ICO. It would be a "by the way" thing, mainly to fund the expansion of the platform and not for the founders to buy their new Ferraris. 
 
It is only when you have such a solid business case for the use of cryptocurrencies that you are likely to be seen as a kosher candidate for an ICO. 

And while many believe that the regulators are too slow to play catch up with this new ICO phenomena, don’t be so sure. They have many levers to pull if they had doubts about your ICO. They could blacklist your company, instruct banks not to allow any opening of accounts related to your ICO (and shut down those believed to be linked) and worse, haul you up for breaching securities laws. Malaysia should not become a hotbed for dodgy ICOs.