Telegram, an extremely popular messaging app, may have ruined the ICO fundraising method for the entire blockchain industry. In fact, their first victim might have even been themselves.
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Telegram Accepting Fiat in an ICO: a Path to Tanking the Crowdsale Market?
In January 2018, Telegram announced a massive, $2 billion ICO to raise funding for an ambitious blockchain platform — beginning with a private sale exclusive to accredited investors. In an unheard-of move in the token sale world, the company only accepted fiat currency for their ICO.
That move, however, might have ignited the downfall of the ICO market.
Vanbex Group CEO Kevin Hobbs told Bitsonline that Telegram’s decision to accept fiat in their token sale had some alarming effects in the altcoin market. Vanbex, a blockchain industry consultancy firm, invested in the ICO itself, and noticed that participants began dumping their tokens for bitcoin and ether as soon as they got them — and immediately converted their proceeds back into fiat.
By accepting fiat, Hobbs said, Telegram removed the need for bitcoin, ether, and other cryptocurrencies.
“This has caused so much weakness in the market,” Hobbs said, “prices [for crypto] are now back to levels of beginning of December 2017.”
What’s worse, Hobbs continued, is that after the Telegram sale, the perceived need for cryptocurrency has greatly diminished in the ICO space. And other companies having token sales now want to mimic the fiat-accepting model of Telegram.
“Because of the Telegram sale, traditional investors don’t see the need to buy any other token to be involved in a token sale… and other sales are wanting to do the same thing.”
“EOS dumped over 435,000 ETH in this market and other companies are dumping as well,” Hobbs said, “a lot of it is to buy into other sales that require fiat.”
Possible Legal Ramifications
Besides the economic consequences of fiat-based ICOs, it’s possible that they could reactivate another major issue in the space: regulation.
Another industry PR firm, wishing to remain anonymous, said they now refuse to work with fiat-based token sales. Why? Because of the regulatory headache that comes with such a method of fundraising.
This revelation comes on the heels of the 2017 SEC controversy surrounding ICOs, in which the government agency created a split between “utility” and “security” tokens, spawning confusion and headaches for companies trying to organize token sales.
That SEC announcement signifies heightened motivation for regulators watching over the ICO space. With that increased oversight, fiat ICOs could very well become costly endeavors.
In fact, the increased regulatory burden now placed on ICOs has claimed one of its first high-profile victims: Telegram itself.
In early May, after SEC chairman testified in front of Congress on the topic of ICOs, Telegram announced they had canceled their public sale. Reportedly, the cancellation was due to regulatory pressures coming from the SEC.
With the public sale canceled, the question remains: did Telegram’s decision to make their ICO fiat-only contribute to this increased scrutiny from the SEC?
Bitsonline reached out to the Gibraltar-based Isolas law firm, a company claiming to be ICO regulation experts, to gain insight on the regulatory issues involved in hosting a fiat-based token sale. However at press time Isolas had not responded to our questions.
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