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Initial coin offerings, or ICOs, have quickly become the hottest means for blockchain-related startups and other companies to crowdfund their operations. Based on a token sale by Ethereum, the past several months have seen numerous ICOs, each one seemingly faster and for more money than the last. In total, according to Bloomberg, ICO sales have earned about $1.3 billion in funding for a variety of companies, some of which have also immediately turned around and converted their earnings into fiat currency, prompting fears of a sell-off. Now, the co-founder of Ethereum has gone so far as to suggest that the ICO phenomenon has become too large too fast, and that startups and investors should cool off before something bad happens.

A "Ticking Time-Bomb"

Charles Hoskinson, co-developer of Ethereum, spoke in an interview about the phenomenon of the ICO. "People say ICOs are great for Ethereum because, look at the price, but it's a ticking time-bomb," he explained. "There's an over-tokenization of things as companies are issuing tokens when the same tasks can be achieved with existing blockchains. People are blinded by fast and easy money."

So far this year, the $1.3 billion in digital coin sales has surpassed all venture capital funding for blockchain companies. It is also six times more than the total funding earned for those companies last year, according to a report by Autonomous Research. Ethereum's native digital currency Ether, meanwhile, has skyrocketed from about $8 per token after its own ICO early in 2017 up to almost $400 by June. Since that high point, however, it has dropped in price by roughly half, and as of this writing it is hovering around $240.

Increasing Concern About Crypto Prices

Hoskinson is one of many different cryptocurrency analysts and investors to caution against the rapid gains that many digital currencies have made in price alongside the digital coin crowdfunding projects which have taken off in recent months. He suggests that regulation may be the single biggest risk to the entire sector, as he believes that the SEC is likely to step in at some point and declare that digital coins are securities. This would be an issue because most startups raising money through ICOs are inclined to pass over the regulatory measures typically required for traditional securities sales. This allows those startups to avoid checking that investors are accredited or verifying the source of potential funds before accepting them. Hoskinson believes that skipping these safeguards may lead to lawsuits at a later time, when investors sue issuers over concerns about the risks associated with buying the tokens.

Brad Garlinghouse, the CEO of Ripple, shares many of Hoskinson's concerns about regulatory risks. He suggested that the SEC will eventually classify cryptocurrencies as securities. "ICOs operating in the Wild West of finance isn't sustainable," he said. "If it talks like a duck and walks like a duck, the SEC will say it's a duck."

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