Over the last few years, there have been dozens of initial coin offerings, also known as ICOs. While many of these have shown short-term explosions in value, a large number of them have subsequently collapsed, leaving investors who were unlucky enough to escape in time with nothing. In fact, the entire history of cryptocurrencies, starting with Bitcoin, has been one of stomach-wrenching volatility and fortunes being won and lost overnight. Within this backdrop, the rash of dozens of ICOs has added an increased element of Wild West wildcatting to an already extremely risk-soaked market.
But risk itself doesn’t make an entire industry inherently illegitimate, although there is an argument to be made that risk that is not widely understood by the investors can amount to ipso facto illegitimacy. Shervin Pishevar, one of the most renowned venture capitalists in America and an expert in the financing of high-tech ventures, has stated that the world of cryptocurrencies, while not fraudulent by its nature, is skirting the line between outright fraud and outsized risk. The problem, Shervin Pishevar says, is that, in many cases, that line is clearly being crossed.
Shervin Pishevar points out the most obvious example of this: Over 10 percent of all ICO proceeds have been flat-out stolen by hackers. In addition to that theft, billions of dollars in cryptocurrencies have been stolen from exchanges. In some cases, the people overseeing those exchanges have been implicated. Shervin Pishevar says this has cost crypto investors billions of dollars and is evidence of outright fraud.
But he points out that it is in the areas that are harder to discern where the real risk of being caught up in a bona fide fraud investigation becomes an issue for investors. Shervin Pishevar says that ICOs themselves are likely non-compliant with current SEC laws. He says that this is a major problem, in itself, for investors in those offerings. But he says that in ICOs where obvious fraud is coupled with major investor losses, the chances of SEC action is high. This, he says, is likely to lead to claw back of all investor profits.