In the traditional financial market, when a company wants to raise funds for an expansion, or simply to gain a new status in relation to competitors, it makes an initial stock offering. If successful in this initial offering, the average for that day will determine the price of your shares.
Of course, in the traditional market, a company can only offer this type of funding after a gigantic audit!
The company has to open its accounts, make its business public, show where it invests, what the plans are for good and bad times. Anyway, you have to convince investors that your released papers are good! Or that yield a lot depending on the average risk that this company can offer.
In the digital financial market, based on cryptocurrencies, there is also a similar service that, in everything, has the same system as the initial launch of shares, but with a difference: no audit!
In other words, unlike the traditional market, already experienced in the early 20th century deceptions that led to the first general bankruptcy in 1929, the digital system, based on blockchain, extremely safer in terms of valuation but extremely ineffective for scammers, brings many advantages and many possibilities, too, of producing SCAM, of producing carpet pulls and of producing pyramids and ponzi schemes.
Any cryptocurrency or blockchain company looking to raise funds to create an app, service, or new currency can use an ICO to raise funds.
An example of when regulation, or auditing, is not present, was in March 2020: an injunction, issued by the District Court fr New York, forces the Telegram, after offering a token, such as ICO, to return $1 .2 billion to investors plus a civil fine of $18.5 million.
But this case was an exception: the telegram has a representative office in the US - to be able to operate. And, having a physical office, the laws applied like anyone else.
However, in the digital world, you rarely know the address of someone who offers an ICO, unless you believe it is true!
ICO, therefore, is the cryptocurrency world's answer to initial public offerings (IPOs) - and they were especially popular during the 2017 crypto bubble.
Since then, ICOs have been criticized for fear that they could be used by scammers and market manipulators.
Some projects also faced action from the US Securities and Exchange Commission because they were considered sales of unregistered securities.
An ICO usually starts with a company releasing a white paper detailing the project goals, how many tokens will be extracted, and how they will be distributed.
In some cases, investors will have reduced prices if they buy tokens at the start of a campaign - and it may also be possible to receive discounts if cryptocurrencies are used for a purchase instead of fiduciary.
Enter the first method of coup: offer at capture price, pre-sales, which go up quickly because they are cheap. In the first hours of release they reach a valuation greater than 200%. And, in a few hours, the founders themselves remove everything. Alas, the price drops to almost zero all of a sudden, leaving most investors with a loss.
Next, the project page disappears. And goodbye to your tokens! Of course, most don't! But this method is very common.
In the traditional financial market, the founders would be arrested for crimes against the economy and for having privileged knowledge, knowing when to withdraw the money, that is, unfair competition with other investors.
Tokens sold through an ICO can offer utility, meaning that the owner can exchange them for access to a particular product or service.
In rare cases, they can represent an equity stake in the start-up that launched the listing.
ICOs are very risky investments, and some of them have even been identified as ponzi schemes, pure and simple.
Review of Financial Studies research shows that ICOs raised nearly $13 billion globally between January 2016 and August 2019.
Meanwhile, an Ernst & Young report found that 86% of the leading ICOs launched in 2017 were below their listing price in October 2018.
Financial regulatory frameworks in traditional markets define what can and cannot be released, reducing risks for retail investors.
In fact, the world's trade exchanges are only called that by regulatory frameworks.
The main criticisms of digital ICOs are around the ease with which they can be launched without regulatory oversight – meaning they often attract inexperienced investors.
Initial exchange and security token offers have become much more popular alternatives in recent years than ICOs.
In the US, the SEC is known for taking action against some projects - including Telegram, which was ordered to return investors a large sum of the $1.7 billion it raised for Telegram Open Network.
The biggest problem for the cryptocurrency trading system to be taken seriously, in the same way as stock, commodity and food exchanges, lies precisely in the fact that it is easy for malicious people to trade and steal from other investors without any punishment .
This is the hurdle for the European Union, for example, to accept larger deals from banks and foundations in relation to cryptocurrencies.
For example, if a pension fund, representing 100,000 people, invests in an ICO to double the pensions that can be offered and loses everything because it was deceived, 100,000 people will be without their future pensions overnight.
Even if the traders on the bottom side are arrested, this money will never be recovered, as it will not be known who cheated.
This is one of the global reasons for not accepting more serious business with cryptomethods.
Of course, this is unfair, since trading with cryptocurrencies does not mean working with ICOs or even Tokens at all.
Just like in the real world, ICOs leverage businesses and ideas.
ICOs can realize innovative ideas through the people who bet on them.
But also, despite the innocence of this idea, there are those who have seen how to get rich unscrupulously!
One way not to fall for this scam is that ICOs usually keep up funding for months.
Check the trading volume and liquidity, in addition to the comments and the veracity of the information, crossing it with more external information.
Also, do not buy anything in advance at ICOs, as the second method of scam is to sell in advance and never deliver. On the release date, the page drops, or becomes VPN and there will be no way to redeem what was posted!
Regulation will take place.
And, if it happens, it will give the right level of big business to the entire cryptocurrency structure!
Until then, take good care of your money!
Remember: "If you can't afford to lose, neither the money nor the time you have, don't invest!"
But if you invest, surround yourself with all the knowledge and don't let greed dominate you. That's what thieves rely on to deceive!
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