With regulators trying to control ICOs, how should investors monetise cryptocurrencies? Philipp Pieper, partner and co-founder at Swarm Fund gives his view to finews.asia.

It isn’t so much the disrupting potential of blockchain technology, cryptocurrency or democratised systems that have made regulators take pause, though. Instead, it’s a market of return-crazed retail investors with a risk-be-damned attitude chasing «businesses» that are rife with fraud. What’s actually remarkable is that it took authorities this long to notice.

China’s decision to ban all initial coin offerings (ICOs) on September 4 shook the world of cryptocurrency. Then, last week, the cryptocurrency space took another hit as Korea’s regulator announced a total ban on ICOs, echoing China’s stance.

Deterrence For Scammers

As the repercussions of the bans echoed down the blockchain, one could almost hear companies scrambling to adapt or contort their business models, especially those with upcoming ICOs. It was as if people were realizing, perhaps for the first time, that one cannot just blissfully ignore the rapidly changing regulatory environment surrounding cryptocurrencies if the objective is to build a real company in the space.

For investors, this transitioning period means several things. The first wave of regulatory action will serve as a deterrence for scammers and half-baked efforts. Last week, the Securities Exchange Commission (SEC) filed charges against the creator of «REcoin» and «DRC», Maksim Zavlavskiy, on grounds that his companies were not what he claimed them to be.

Pump and Dump Schemes

Retail investors who have rushed into the space with an attitude of invest first and ask questions later, can expect more disclosure on company information and the risks involved. Indeed, much of regulators’ concern sprung from the fact that retail investors faced considerable exploitation risk in the cryptocurrency space.

The good news is, the raft of pump-and-dump Ponzi schemes will soon be cleared away, giving more certainty and credibility to those companies who are still left standing to embark on ICOs. It’s an encouraging development for companies that have entered this space fully aware of the implications, and exercised due diligence around their compliant offerings.

From that perspective, monetisation shouldn’t be an issue for ICO investors. With ICOs currently banned in China, for example, companies are still able to pop over to Hong Kong and operate from that jurisdiction. The underlying nature of this technology is borderless, so the only effect bans will have is to drive it to more favourable locations.

Constructive Criticism 

Perhaps the most encouraging development yet, though, is Japan’s licensing of 11 bitcoin exchanges, a move that underscores the fact that there is room for cryptocurrencies within a legitimate state. Japan announced in September that they had no plans to ban ICOs or token sales. It very well may be that that Japan’s model is the future look of cryptocurrency exchanges.

In addition, IMF head Christine Lagarde’s comments during her «Brave New World» speech at the Bank of England Conference a few weeks ago, indicated a positive view of crypto currency. It is possible that her positive views might have helped change the traditional finance world’s opinions of the currency’s future.

Not If But When

Many in the market will continue to try to bend their existing and planned ICOs in convoluted ways to fit into the still-evolving regulatory framework, especially in the wake of China and Korea, but one thing should be certain to everyone; regulation is not a matter of if’, but when.

And that regulation will have a cascading effect, one that will help investors discern, quite easily now, compelling new investment potential.

Because it will be the legitimate companies, who have a solid business plan and nothing to hide, who will welcome this development with open arms.

That’s where investors who want to monetize their cryptocurrencies should look first.

Philipp Pieper partner and co-founder of Swarm Fund has been a start-up entrepreneur for the past 10 years and is a veteran in the digital data space. After holding various private equity and management positions within Deutsche Bank and Allianz Group, Pieper co-founded Proximic in 2006 and subsequently moved from Germany to Silicon Valley. He holds degrees in engineering and business administration and attended Berlin University of Technology and UC Berkeley Haas School of Business.