Just as companies have initial public offerings, cryptocurrency developers have initial coin offerings, or ICOs, where they launch their currency for public purchase. In 2017 ICOs accelerated at breakneck speed, raising concerns over a speculative bubble and heightened regulations.
"Last year was the year this whole phenomenon of token offerings ... took off, " The Wall Street Journal cryptocurrency reporter Paul Vigna said while moderating a South by Southwest panel on the bitcoin craze.
ICO values went from about zero in January 2017 to more than $470 million in September 2017 alone, according to ICO Watchlist data. It reached a point where someone could raise capital with nothing but a "white paper and a website," Kathleen Breitman, co-founder of Tezos blockchain, said, and fraudulent ICOs became common.
However, as 2017 progressed and investors became more savvy, fraudulent activity has slowed down considerably, panelists agreed. The greater risk now is a speculative bubble in the cryptocurrency marketplace, they said.
"I was very surprised by the degree to which everyone I talked to ... all understood they were taking very large risks," Vigna said of cryptocurrency investors. He compared them to venture capital funds that buy a wide range of speculative assets hoping gains from a few big winners offset losses from the losers. He compared it specifically to venture capital during the run-up to the 2000 tech bubble.
Still, the panelists pointed out that the dot-com boom and eventual crash created opportunities for companies such as Alphabet Inc. and Amazon.com Inc. to succeed and was responsible for the deployment of thousands of miles of fiber-optic cable as connectivity became paramount.
Likewise, cryptocurrency companies will rise from the ashes of this bubble, Vinny Lingham, creator of Gyft, a bitcoin-based consumer platform, argued, and it will lay the foundation and best practices of a new industry.