MARKETS and manias go together. The latest frenzy is for all things crypto. The price of the best-known digital currency, bitcoin, has risen by nearly 700% this year and is now about $7,500; one enterprising firm recently quadrupled its share price simply by adding the word “blockchain” to its name. But nowhere do alarm bells ring more loudly than in the realm of “initial coin offerings” (ICOs), a form of crowdfunding in which firms issue digital “coins” or “tokens” in return for a payment (typically in ether, another crypto-currency). ICOs have raked in more than $3.2bn this year, rivalling the money flowing to internet startups from early-stage venture capital. Although most of these tokens are supposed to be used in exchange for the companies’ products, as in a corporate loyalty scheme in the offline world, investors scent something different: the chance to be in at the birth of another bitcoin.

It is tempting to dismiss ICOs as nothing but a fraud’s charter. They are easy to pull off, requiring little more than a few enterprising souls and an ambitious-sounding plan. Unlike equity-owners, coinholders get no claim on an issuer’s earnings. Projects are being marketed to retail investors. In September America’s Securities and Exchange Commission (SEC) brought its first charges against a token-issuer, for allegedly promising hefty returns from firms that barely exist. China and South Korea have banned ICOs altogether.

Yet there is usually meaning in the madness of technology-driven bubbles. The British railway mania in the 1840s helped create a national network of train lines; the dotcom boom spawned firms such as Amazon and eBay. So it is with ICOs.

They can provide a source of finance for serious software projects which otherwise have a hard time getting off the ground. As an analogy, imagine that in the early days of the internet domain names had been sold to finance the development of the network with the promise that their value would rise as online traffic grew.

ICOs may also give rise to new forms of firm: because founders, employees and users hold coins, everyone has an interest in seeing their network grow, as this will drive up the value of the token. One example of this is Filecoin, which in September raised $257m and will allow token-holders to buy and sell digital storage on each other’s computers. Enthusiasts say that these “crypto co-operatives” combine the advantages of a firm—lower transaction costs, aggregation of capital—with a decentralised structure that means no one controls it or the data it holds. Such hopes may prove unfounded, but there is a chance that organisations of this sort could offer an alternative to the monolithic tech giants of today.

The baby in the bathwater

For these reasons, it is wrong for regulators to ban ICOs. Fortunately, most are more thoughtful. Some, like the financial-market authorities in Quebec, have invited ICOs into a regulatory “sandbox”, where less strict rules apply (see article). The SEC has issued a useful report giving guidance about when a token is a security, meaning that an ICO has to comply with registration requirements. This month it warned celebrities against making endorsements of an ICO (as Floyd Mayweather, a boxer, and Paris Hilton, a socialite, have done).

The big test of regulators will come when the ICO bubble pops, as it surely will, and people lose money. If the backlash is severe, ICOs and the organisations they finance might fall out of favour for years to come. A lot of today’s ICOs sound silly, and some are scams; most of the projects they finance will fail. But they might just contain the seed of a digital future that is not dominated by a few online giants.