The Revival of Crypto ICOs: The Future of Capital Formation?
Investing in cryptocurrency is fundamentally about reshaping the infrastructure of finance. Thus far, we've seen this materialize in three clear areas:
- Bitcoin: Reshaping gold's resistance to inflation.
- Stablecoins: Reshaping the U.S. dollar.
- Tokenization: Reshaping trading and settlement.
These developments are early, but the trends are clear. I believe that eventually most assets will be tokenized, most dollars will be transacted via stablecoins, and Bitcoin will be widely accepted like gold. These are trillion-dollar opportunities that can fuel a multi-generational crypto bull market.
This week, a fourth area emerged: capital formation. I think this will be a key theme in crypto by 2026.
What Happened?
Capital formation is one of the most important functions of finance. Through this process, entrepreneurs raise money to start new companies, develop products, and create jobs. The current system is inefficient and unfriendly to individual investors. Institutional money flows to top venture capitalists, who in turn invest in the best startups. These companies stay private for a long time, accruing value for early shareholders. When they finally go public, the shares are primarily sold to other institutional investors. Ordinary investors only get to participate in the late stages. This system is expensive and heavily regulated, leading to far fewer IPOs today.
Cryptocurrencies tried to change that in 2017 and 2018 with the Initial Coin Offering (ICO) boom. ICOs allowed ordinary people to invest in projects before they were listed, directly linking entrepreneurs to retail investors. But frankly, the results were a disaster. Due to a lack of regulation, the vast majority of ICOs turned out to be scams. Scammers raised billions of dollars from the unsuspecting public and then ran away with the money. The SEC had to step in, even threatening to prosecute promoters criminally. The crackdown in 2018 ended the ICO boom and plunged the crypto market into a long winter.
What's Different Now?
Most who lived through the 2017-2018 ICO boom think it was an utter failure and exposed the dark side of crypto. But a small group saw potential. Despite the problems, ICOs proved one thing: cryptocurrencies can raise money quickly for new projects. Compared to the high costs, cumbersome procedures, and bias toward the wealthy of the traditional IPO route, ICOs were cheaper, faster, and more equitable.
Paul Atkins, the current SEC chairman, is one of those who saw this potential. His support for ICO-like plans is not surprising: before joining the SEC, he was the co-chairman of the Token Alliance, an organization dedicated to promoting innovation in tokens like ICOs. He also served on the board of Securitize, a company focused on tokenization. In July of this year, Atkins publicly called for a new regulatory framework and protective system to create the right conditions for high-quality ICOs. He argues that once we solve the problems of ICOs 1.0, we can expect a wave of capital formation led by cryptocurrencies.
On Monday, Coinbase took a significant step in this direction, announcing the launch of its ICO platform. From now on, Coinbase will launch a carefully vetted crypto project each month. This will allow investors to participate in projects before they launch, and will open up new funding channels for projects. Coinbase will implement strict standards, including team background checks, disclosure requirements, and ensuring that insiders cannot sell tokens for six months after the project launches. In short, through self-regulation, they aim to solve many of the problems of the 2017-2018 ICO era.
My Predictions
I predict that by 2026, there will be at least six billion-dollar ICOs through platforms like Coinbase. Although small compared to the traditional IPO market—there were 176 IPOs in the U.S. in 2024, raising $33 billion—the success of these ICOs will prove that entrepreneurs can raise money directly from investors, often getting better terms than a traditional IPO. Over time, I believe that more and more projects will choose the direct ICO model instead of the traditional funding route.
How To Invest In This Theme
If I'm right, the most direct investment is Coinbase. The company is using its dominant position in crypto trading to expand into new markets. It is not just the Charles Schwab of crypto, but also Charles Schwab + Goldman Sachs + the New York Stock Exchange. Meanwhile, a healthy ICO market will also benefit large programmable blockchains like Ethereum and Solana, as many ICO projects will be built on these platforms.
More broadly, the revival of ICOs will be another milestone in the crypto space. Crypto today has more potential than it did a few years ago because we have the stablecoin and tokenization story. If we add billions of dollars raised through ICOs, that story becomes even more compelling. This trend suggests that we should make a broader market allocation: for example, investing in index funds that hold a basket of crypto assets or crypto stocks. In other words, don't worry about picking the horse, bet on the race getting better. That race is getting better.
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