Over the last year and a half, there has been an irrational surge in initial coin offerings (ICOs). Many of these ICOs were not bringing anything new or valuable to the table, but just riding the wave of publicity that popular cryptocurrencies like Bitcoin, Ethereum and Litecoin have garnered.
There has been a lot of discussion about whether Bitcoin and cryptocurrencies are a bubble and about their value as currencies. Interestingly, the government has taken a position that cryptocurrencies are not, in fact, currencies at all. Instead, they are more like a good or a commodity.
However, it appears that maybe everyone was wrong. The SEC has started to look at ICOs as a form of stock or ownership, which could have a tremendous impact on the future of investing.
From just $107.88 $24.99 for Kiplinger Personal Finance
Become a smarter, better informed investor. Subscribe from just $107.88 $24.99, plus get up to 4 Special Issues
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
ICOs Come and Go: Cryptostocks are Here to Stay?
Studies and reviews of ICOs over the last year have found that most ICOs fail pretty quickly. This is not a surprise, as many of them do not have real business plans or companies behind the ICO. Most of these ICOs are just trying to capitalize on the hype surrounding other cryptocurrencies. There is clearly a strong desire among many individuals to decouple their money and finances from a centralized and controlled system. As such, cryptocurrencies have appealed to a number of people who do not trust or believe in the current monetary system. While there is some traction here, the idea that a cryptocurrency will fully supplant the U.S. dollar in the near or even distant future seems highly unlikely.
With this in mind, it may time for blockchain assets to undergo some rebranding. Instead of looking at tokens as coins, it may be better to see them as cryptostocks. Among other things, blockchain tokens or coins give owners access to whatever is the underlying platform. They may also grant special platform rights to the people who hold them, which could be voting rights, ownership rights, or even dividends. In many ways, blockchain assets are an amalgamation of stock-based equity ownership and boardroom-style membership rights.
SEC Gets Sneaky to Prove a Point
The SEC has tried to highlight the dangers around investing in ICOs without fully vetting them. The SEC set up a fake website about a “HoweyCoin” ICO to illustrate this point, complete with celebrity endorsements and a fake white paper, and it appears to have been taken seriously by more than a few investors! At a minimum, it got a lot of press and attention.
The SEC wants potential investors to do their due diligence with ICOs, which means working with a professional who understands the cryptocurrency world and has worked with successful ICOs, and also doing background checks into the individuals running the ICO.
The SEC has indicated that ICOs are going to become more regulated in the future and its comments have suggested that the tokens generated from an ICO may be a form of stock ownership. Further regulation could have a stabilizing effect, which would cut down substantially on the number of failed attempts.
A Stock Market Revolution
While many in the general public might view ICOs as simply an offering of a cryptocurrency like Bitcoin, ICOs have the potential to be so much more. Their real challenge and disruption to the status quo might not be in challenging currencies, but instead challenging the way that stocks are bought and sold. They represent a real change in accounting and technology when backed by blockchain that could completely disrupt IPOs and stock exchanges. Blockchain and coin offerings could replace stocks as a form of ownership, essentially cutting out middlemen traders and opening up equity ownership in a way we have never seen before.
Emerging companies are using coin offerings as more than merely a currency challenge; they are using them as an access point and an ownership structure. The ease with which coins can be exchanged over blockchain, without middlemen and transaction costs, could totally disrupt traditional stock-ownership structures and markets. We are seeing the emergence of a truly global financial market that uses the Internet as a platform.
While we might have already passed the initial phase of overexuberance for ICOs, don’t expect the growth of ICOs to slow down or cease. Companies will continue to look at ICOs as a way to disrupt the status quo, take advantage of this new technology, and try to figure out how it can fit into their business model and add real value.
The role of ICOs as a flat digital currency with no other use besides replacing more traditional forms of currency will struggle, but ICOs could replace IPOs and disrupt the entire stock exchange system.
-
Stocks Slip to Start Fed Week: Stock Market TodayWhile a rate cut is widely expected this week, uncertainty is building around the Fed's future plans for monetary policy.
-
December Fed Meeting: Live Updates and CommentaryThe December Fed meeting is one of the last key economic events of 2025, with Wall Street closely watching what Chair Powell & Co. will do about interest rates.
-
This Is Why Investors Shouldn't Romanticize BitcoinInvestors should treat bitcoin as the high-risk asset it is. A look at the data indicates a small portfolio allocation for most investors would be the safest.
-
Why Investors Shouldn't Romanticize Bitcoin, From a Financial Planner
Investors should treat bitcoin as the high-risk asset it is. A look at the data indicates a small portfolio allocation for most investors would be the safest.
-
I'm a Financial Pro Focused on Federal Benefits: These Are the 2 Questions I Answer a LotMany federal employees ask about rolling a TSP into an IRA and parsing options for survivor benefits, both especially critical topics.
-
Private Credit Can Be a Resilient Income Strategy for a Volatile Market: A Guide for Financial AdvisersAdvisers are increasingly turning to private credit such as asset-based and real estate lending for elevated yields and protection backed by tangible assets.
-
5 RMD Mistakes That Could Cost You Big-Time: Even Seasoned Retirees Slip UpThe five biggest RMD mistakes retirees make show that tax-smart retirement planning should start well before you hit the age your first RMD is due.
-
I'm a Wealth Adviser: My 4 Guiding Principles Could Help You Plan for Retirement Whether You Have $10,000 or $10 MillionRegardless of your net worth, you deserve a detailed retirement plan backed by a solid understanding of your finances.
-
A Retirement Triple Play: These 3 Tax Breaks Could Lower Your 2026 BillGood news for older taxpayers: Standard deductions are higher, there's a temporary 'bonus deduction' for older folks, and income thresholds have been raised.
-
If You're Retired or Soon-to-Be Retired, You Won't Want to Miss Out on These 3 OBBB Tax BreaksThe OBBB offers some tax advantages that are particularly beneficial for retirees and near-retirees. But they're available for only a limited time.
-
Waiting for Retirement to Give to Charity? Here Are 3 Reasons to Do It Now, From a Financial PlannerYou could wait until retirement, but making charitable giving part of your financial plan now could be far more beneficial for you and the causes you support.
