A study by the University of Luxembourg Faculty of Law, Economics, and Finance entitled “The ICO Gold Rush: It’s a Scam, It’s a Bubble, It’s a Super Challenge for Regulators” has decried the practice of holding ICOs as displaying some–but not all–of the characteristics of a “classic speculative bubble.” The study collected data from more than 100 of the 1000+ ICOs that have taken place over the last 18 months.

The study criticized the widespread practice of presales–at least 60% of the ICOs followed in the study had sold tokens “to a private investor group prior to the ICO.” Giving a small group special access to a large number of tokens on a network can (and does) contribute to “pump and dump schemes,” in which the early investors sell their inflated coins at a profit shortly after an ICO has taken place.

In some respects, some of the other problems that the study detailed should be obvious red flags to ICO participants. For example, “white papers for ICOs typically reveal very little about the issuing entities and their backers,” and failed to provide “physical, postal, or other contact address” for the organizations behind them. All told, only 40% of the whitepapers provided “valid” postal information; 18% of the ICOs in the study did not provide “any information at all about the issuing entity.”

Additionally, 70% of the ICOs failed to provide any legal information relevant to their ICOs. The study noted that “almost all ICOs rely on legislative loopholes or, more accurately, what the issuing entity hopes (or prays) is a loophole or grey area.”

The study noted that the one thing that seemed to be consistent throughout the whitepapers was the inclusion of some technical information about how the corresponding cryptocurrency operated, although 4% of the whitepapers lacked even this.

Naivety or Malice?

The study attributed the lack of legal information (and overall inconsistency in the information provided by whitepapers) to the hypotheses that ICOs are “frequently structured to avoid existing legal and regulatory requirements.”

While the study acknowledges that some of the less-than-legitimate characteristics of ICOs and their corresponding whitepapers can be attributed to the naivety of “the stereotypical crypto-geek about legal or other requirements,” it also nods to the presence of malicious intent.

While governments across the world are taking swift steps to regulate the practice of ICOs, there are a growing number of ICO-related scams that have taken place across the crypto space. Recently, the Confido ICO was dubbed an ‘exit scam’ and is currently in the hands of the FBI.

Additionally, Tezos has been hit with three class-action lawsuits in recent weeks seeking compensation for Tezos ICO participants. The company has been under much scrutiny following a public spat between the individuals at the core of the organization in which all parties accused each other of helping themselves to some of the money raised during the ICO (a whopping $400 million).

A Global Culture of Swift Regulation, Although Severity Varies

To deal with the criminal activity associated with ICOs, some countries have banned the practice completely. China announced its ban on ICOs in September; South Korea joined, and others followed. The study points to Switzerland and Singapore as “leading examples” of countries with more “lenient” regulatory practices.

Data published by cryptofinance research firm Smith + Crown last week also revealed that of the 169 ICOs that took place in October, only 69 of them were able to reach their fundraising goals without extending or postponing their sales. Some of the failed ICOs were cancelled outright.

Smith + Crown pointed out that market saturation might not be the only factor contributing to the dimming success of the ICO market. The firm wrote that the increased likelihood of ICO failure may be a sign of a market that has become smarter and more discerning–more likely to choose to fund the projects that are likely to succeed in the long term.

In September, Ethereum creator Vitalik Buterin said that the world was “in an ICO bubble.” It seems as though that bubble is starting to pop, but not without valid reason. The ICO culture, while providing lots of people with lots of wonderful opportunities, has historically been a space in which advantageous criminal behavior has gone unchecked for far too long. As the markets continue to become more discerning and governments navigate the regulatory seas, we can only hope that ICOs will become a healthier practice.