If It Quacks Like an IPO

Picture this: A company with little more than a catchy whitepaper and a logo rolls out a "token," gathers millions in Bitcoin or Ether from a crowd of eager investors, and then sails off into the sunset. Sounds familiar? You are not wrong. 

It is basically an unauthorized public funding campaign, except there is no board of directors, no quarterly reports, and certainly no regulatory oversight to protect those wide-eyed investors. Ready for the shocker, crypto bros? Here it comes: 

ICOs are like IPOs with all the structure, diligence, and, most importantly, regulation missing. 

An ICO is not far off from a company going public. They both raise funds from the public. But while an IPO is wrapped up in a package of disclosures, investor protections, and listing requirements, an ICO is more like a street performer with a tin cup, hoping people will toss in money without asking too many questions.

ICOs: The Untamed IPOs

If we strip away the buzzwords – blockchain, tokens, decentralization – what we are left with is a company raising money from the public in exchange for something of questionable value. Tokens, or coins, are essentially shares, though with fewer rights. You get no vote, no say, and certainly no dividends. Yet, for some reason, ICOs have managed to avoid the scrutiny and regulation that IPOs endure.

It is an uncomfortable truth that these ICOs are just digital IPOs in drag, but they sidestep all the headaches of being a publicly listed company. In the IPO world, regulators require a slew of disclosures, prospectuses, and audits to make sure investors know what they are buying into. Meanwhile, ICOs have lived in this dream world where they throw up a whitepaper (read: half-baked sales pitch), and suddenly they are cashing in. It is as if they are saying, “Look, we are selling magic here, not equity!” – and investors are expected to smile and nod.

The Howey Test (U.S.) – Spoiler Alert: It is a Security

If you ever wondered why regulators are not too happy about ICOs, let us take a little stroll through legal history – namely the Howey test. In the U.S., this test has been used for decades to determine whether something is a security. It boils down to four simple criteria:

1. Investment of money (check – people are throwing crypto at ICOs),

   
   

2. In a common enterprise (check – all funds pooled together in the hopes of future returns),

   
   

3. With the expectation of profits (double-check – because everyone is waiting for those tokens to “moon”),

   
   

4. From the efforts of others (checkmate – the company is the one doing all the work, while investors wait on the sidelines).

In short, if an ICO meets all these conditions – which, let us be honest, most of them do – then it is a security, plain and simple. 

And what happens to securities? They get regulated or they have to sit on the naughty stool.

So, ICOs are not just “tokens” or “utility coins” floating in the crypto ether. They are securities and should be treated as such, with all the regulatory baggage that comes along with that title. The fact that most ICOs skip over this little detail is where the problem lies.

Europe – Enter MiCA

Across the pond, Europe has its own approach with the upcoming Markets in Crypto-Assets Regulation (MiCA). Once MiCA is fully operational, the Wild West of ICOs in the EU will come under strict regulatory scrutiny. The regulation classifies tokens into utility tokens, asset-referenced tokens, and e-money tokens, all of which will need proper authorization and disclosures to ensure that investors are not left holding a digital bag of nothing.

In fact, MiCA is set to establish a framework that is not too different from traditional securities regulations. Issuers will need to publish a whitepaper that is more than just a marketing brochure, including the risks, tokenomics, and business strategy behind the offering. Sound familiar? That is because it echoes the obligations that publicly listed companies already face under EU securities law.

Australia – The Legal Hammer

Down under, Australia’s Corporations Act already has its sights on ICOs. The Australian Securities and Investments Commission (ASIC) is not playing around. They have already made it clear that an ICOis going to be treated as a security offering under Australian law. In practice, if tokens issued in an ICO meet the criteria of a managed investment scheme, they are regulated just like any other security.

In Australian law, the same principles from the Howey test apply – if there is an expectation of profit driven by the efforts of others, it falls under security law. And when it does, you better believe the ICO will need to comply with Australian disclosure requirements, licensing, and investor protection measures.

Singapore and Beyond – The Global Dragnet Tightens

In Singapore, the Monetary Authority of Singapore (MAS) has already issued guidelines treating certain ICOs as securities under the Securities and Futures Act. ICOs that offer tokens tied to underlying assets or future profits get swept under the securities umbrella, bringing them into the regulatory fold with all the accompanying disclosure and compliance requirements.

And it is not just the U.S., Europe, Australia, or Singapore tightening the noose. Other major jurisdictions like Hong Kong, Japan, and Canada are all moving in the same direction – dragging ICOs into the regulatory spotlight, often treating them as securities when they fit the bill. It is clear that the days of ICOs operating in legal limbo are numbered.

If It Quacks Like an IPO...

Let us not kid ourselves. ICOs, at their core, are nothing more than digital IPOs trying to avoid the adult supervision of regulators. When a company raises money from the public – whether by offering shares or tokens – it is fundamentally the same thing. There is an investment, there is an expectation of profit, and it is driven by the hard work of the project team. 

So why should ICOs not be treated like IPOs? Why should they not face the same levels of scrutiny, disclosure, and accountability? The answer is simple – they should. Because when we strip away the shiny veneer of blockchain and decentralized tech, what we are left with is a good old-fashioned public offering. And as we have learned time and time again, when you let companies raise funds from the public without proper oversight, it is usually the investors who end up losing.

The Lie of Decentralization 

What’s even worse is that the promise of decentralization is often a bold-faced lie. True decentralization cannot be engineered in some lab by a central entity. True decentralization emerges naturally, over time, and the originator must step back at the right moment — letting it grow on its own, exposed to the elements. 

Out in the wild, it faces constant threats of wilting, being uprooted, or taken over by self-serving, centralized forces. But that’s exactly what makes it decentralized — the ability to survive or fail on its own terms. 

You may have guessed it: this is none less than Bitcoin. And this is the reason why Bitcoin is classified by the US Commodities Futures Trading Commission (CFTC) as a commodity. Just like gold.

Conclusion: ICOs Need to Grow Up

In the end, the magic of ICOs lies in their ability to tap into the public’s money without jumping through the regulatory hoops that IPOs have to navigate. But that magic act is coming to a close. Jurisdictions around the world are waking up to the fact that ICOs are little more than unauthorized public funding campaigns. And if we applied common sense (and legal tests like the Howey test), we would treat ICOs exactly like IPOs – with all the rules, regulations, and investor protections that come with it.

Because let us be real – if it quacks like an IPO, raises funds like an IPO, and promises profits like an IPO – it is an IPO. And it is about time ICOs grew up and faced the regulatory music.

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Disclaimer: This is neither investment advice nor legal advice — it's just words on a screen. If you're thinking of making life-altering decisions based on this, stop and do your own research first. Better yet, consult me or a qualified colleague when we're wearing our serious professional hats and clown noses. Until then, keep your crypto wallets close and your common sense closer!