Digital currency has been getting a lot of attention lately, given the recent rise in the price of Bitcoin to an all-time high over $1,700. Bitcoin, however, is not the only digital currency on the market, and numerous other digital currencies have seen significant increases in their value. New digital currencies are launched very quickly, with well over 800 on the market today, according to CoinMarketCap. Some of the teams behind these digital currencies are funding the development of their projects through crowd-funding, similar to a Kickstarter campaign. Unlike Kickstarter campaigns, however, instead of accepting credit cards and selling t-shirts, these projects are selling the brand new digital currency itself.

These crowd-funding campaigns are becoming known as "Initial Coin Offerings," or "ICOs," due to their similarities to Initial Public Offerings (IPOs). There are some key differences between IPOs and ICOs however. ICOs are not regulated or audited and, in some cases, are not even issued by identified people. IPOs include the issuing of shares in operational companies, while ICOs issue digital coins for projects that have yet to be developed.

ICO Popularity Is Increasing Rapidly

In April 2017, my business published a report on the state of the ICO market. Three key trends were identified at the time of writing:

The ICO market was growing exponentially, with $168 million in crowdfunding resulting in a market capitalization of $4.5 billion.

Returns of ICOs were very skewed, with 35% of ICOs failing and 45% returning showing returns over 500%.

The time during which an ICO accepts funds from backers was dropping rapidly, with the most popular ICOs receiving their allotted funds in hours, if not minutes.

Since that time, these trends have accelerated in their current direction. There are growing fears of a bubble, but interest in backing ICOs is not decreasing. The 40 ICOs we surveyed on April 12th more than doubled in value in the weeks since.

Recent ICOs

There is continued evidence that fears of a bubble are not driving away new project backers. The amount of time each ICO accepts funds from backers continues to drop. Simply put, demand for ICOs appears to be at an all-time high.

Projects raising funds through an ICO continue to be able to raise their total allocated issuance in a single day, if not in several minutes. For example, on April 24th a project named "GNOSIS" raised $12.5 million in digital currency from initial backers. Not only did it raise this funding in the first day, it did so in just 12 minutes. Projects turning to ICOs for funding are running into an interesting problem that most companies don't have: too much demand. Most ICOs have a maximum on the amount of funds they will raise (similar to IPOs), and the demand is simply too high for most participants to fund the project.

Upcoming ICOs

There is no lack of upcoming ICOs, with the next high-profile launch being that of "Tezos" on May 22nd. The group behind the Tezos project intends to accept Bitcoin and Ethereum in return for the promise of their upcoming digital currency, named "Tezzies." The Tezos project is already experimenting with this funding mechanism in several ways. First, the Tezos already completed what can be best described as a "seed" ICO. The team sold its new coins at a 31.5% discount to a select group of investors. Its upcoming ICO on May 22nd will be open to the general public. During the ICO, the Tezos team plans to accept an unlimited amount of funds from project backers.

Participation in the Tezos ICO could also prove complicated for participants. According to the prospectus, participants effectively purchase a PDF. Even for the technically minded, participating in their upcoming crowdsale will prove challenging. To explain their proposal in human terms:

You can buy into this crowdsale only using the digital currencies Bitcoin or Ethereum.

After you send them your money, they will give you a PDF file to print out.

Every 3 days, the price of the ICO increases by 5%, ending 14 days after May 22nd.

Some time in the future, when their project is ready, you can use this PDF to get your new digital currency, called "Tezzies."

Too Good To Be True?

The returns are attractive, but the risks remain very high. Securities regulators maintain a close watch on the space, with the Ontario Securities Commission even releasing a warning to companies that they may be violating existing securities laws if they are not filing the correct prospectuses or relying on exemptions.

That being said, demand does not seem to be going away. The risk remains high, but for those who remain interested, and can navigate the technical hurdles to participating, the first step is to obtain Bitcoin or Ethereum ahead of time. These two digital currencies are usually the only accepted payment method for these ICOs. Obtaining any digital currency can be a lengthy process for new users; getting familiar with the process is a good idea. If you plan to participate in an ICO the day you hear about it, you will likely be left disappointed by delays and sign-up verification. There are generally a few options in each country, with payment options such as bank transfers, credit cards, or cash. Popular options are Coinbase and SFOX in the US, Bitstamp and Kraken in Europe, and Bitaccess in Canada.