04 February 2019 17:29, UTC

The active growth of the crypto market, as well as the growth in the number of projects that failed, raise the quite logical question about the future of the ICO and blockchain projects in 2019. Has the ICO era come to an end, or are we waiting for the second round of crowdfunding projects? This year, only those assets and applications that will be able to provide their users with real financial results will be able to stay on the market. And in order to do this, it is important to understand what requirements for crypto projects are made by regulators today.

In 2018 many commercial and technical problems became apparent on the blockchain and cryptocurrency market, including lack of efficiency and scalability, the complexity of management and compatibility, with security vulnerability as well. Most experts agree on the need to reform the market and introduce new regulations, with the sphere of ​​data confidentiality protection being above all. Only an effective public policy can help projects realize their full potential and attract investors.

How to organize ICO taking all the regulatory requirements into account?

open, liberal and friendly - for example, in Switzerland;

open, but cautious - for example, in the USA;

absolutely hostile - for example, in China.

Regulation is the most challenging point in the proper ICO launch. There are three main types of regulatory regimes in the world today:

Since ICO is an Internet business, it can be carried out in a country with the most appropriate legislation. Therefore, China should not be considered for this purpose, and, while choosing between the USA and the EU countries, an ideal option would be taking into account local features of the tax system and the attitude to cryptocurrency and data privacy issues.

It is also important to consider that the tokens released during ICO are now strictly divided into two types — security tokens and utility tokens. Security tokens are directly proportional to the growth of the company, and the rules that apply to them are the same as to securities. Utility tokens are used for the operation of the project and the product and have free pricing. The type of used tokens affects the tax treatment to be applied.

Some countries can be called ICO-friendly today: Singapore, the Cayman Islands, Malta, Switzerland, Luxembourg, and Lithuania. Switzerland, however, stands out from the list, because it has the best conditions for holding an ICO. Although it’s only on the 4th place in terms of number of ICOs held in it, friendliness of regulators and a history of cryptocurrency regulation are much more important here. A liberal approach to the regulation, the possibility of direct access to government and decentralized ideals are among the main advantages of the country. However, choosing the most comfortable country for an ICO will not be enough for a successful campaign, since external regulators such as the SEC and CFTC also influence the ICO.

There are a few more factors that should be taken into account by blockchain developers in 2019. All of them are caused by the decisions of SEC in 2018. Firstly, the US regulator decided to treat any issued token of the decentralized network as a security, and secondly, we are still waiting for the SEC decision regarding Bitcoin-ETF. It is also important to keep in mind such factors as the compliance of the blockchain technology with a number of provisions of the General Regulations for the Protection of Personal Data (GDPR), which entered into force in May 2018.

In 2019, the beginning of the joint work of regulators from different countries is expected. Some states are going to ban anonymous cryptocurrencies, such as Monero and ZCash. 2019 may see the increase of pressure on decentralized exchanges that allow trading any tokens and coins without any reports to the authorities. Last year some regulators also proposed criminalization of the incorrect operation of the smart contract code for its authors.

In addition to the regulatory aspects, the project should have the following components to make the ICO campaign effective in 2019: good tokenomics and a legitimate business model; thoughtful and popular product, good marketing and a clear market entry strategy.

What innovations should be expected from regulators in 2019?

2018 demonstrated proactive regulators in matters of ICO, as well as in the reform of existing laws or the development of new ones in most countries. Almost all financial supervisory authorities agreed on the high risk of investing in ICO and cryptocurrency projects and are actively talking about it. In combination with regulatory measures, this trend has contributed to the current fall in the ICO market and the decline in cryptocurrency rates.

To properly organize an effective ICO, it is important to consider the future direction of the global regulatory changes in 2019. For example, Malta and Switzerland plan to reduce participation barriers in investment projects, while Russia and China are in favor of applying national regulatory policies to protect state influence. Britain and the US are talking about compliance with generally accepted laws and practices for the protection of consumer rights and the maintenance of financial stability.

Also, all market participants should expect strengthening requirements for KYC procedures at the national level, the emergence of local regulation hubs, the emergence of new financial cryptocurrency tools, the development of the coin supply methods, such as STO, tokenization of securities, synchronization of services, licensing of STO activities, the creation of a global cryptocurrency regulation mechanism both at the international and regional levels.

The ICO market is changing, and methods of investing in projects are changing after it. Today, it is preferable to use the strategic investment to attract funds. It involves the use of hybrid models — ICO-campaign, STO launch, venture investment. The gradual market institutionalization contributes to the emergence of clear and transparent offers for investors with full legal protection guaranteed.

Image courtesy: Shuftipro

About the author:

Alena Narinyani is a journalist, marketing and SMM specialist, CEO at Crypto-A company.

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