Earlier this week, Google followed in the footsteps of Chinese search engine Baidu and banned all advertising for those initial coin offerings (ICO) we have all heard so much about. You know the ones: the start-ups no one has ever heard of that invent a cryptocurrency like bitcoin, take all your money, and where the founder buys a mansion in St. Kitts.
“I think in the coming days, new ICOs will struggle to get the same kind of penetration in the market that they once had,” says Naeem Aslam, chief market analyst with ThinkMarkets in London and a Forbes contributor. “Advisors and PR agents will certainly have to find a new way to battle for attention if they want the same kind of market penetration,” he says.
Those who operate in the new ICO world say Google is just getting ahead of expected Securities and Exchange Commission rules to protect cryptocurrency investors.
Facebook banned ICO advertising in January. Google is actually late to the game.
One ICO platform company who wished to remain anonymous said that Google told him they felt they had no choice but to ban the ads, or risk regulators breathing down their necks at some point in the near future.
A handful of ICO scams have given the entire market a bad name. And so the crackdowns by Baidu, Weibo, Facebook, Google and likely Russia’s Yandex search engine are being heralded by the crypto community as a means to separate the wheat from the chaff.
Industry analysts estimate that Google made around $25 million a year in advertising revenue from ICOs.
“Ads will be forbidden, but search results will not be banned so this will just lead to a bigger role for search-engine optimization promotion techniques and make marketplace platforms more important players,” says Anti Danilevski, whose Moscow-basIed KICKICO is one of the myriads of ICO support services companies that was not shocked by the move. They all think it bans the scammers and makes their business models more viable.
In other words, Google’s ban isn’t the end of the serious ICO. At least not this year. The not-so-serious ICO, in theory, will fall by the wayside.
ICO companies are also shooting themselves in the foot. For every 10 headlines about a new ICO millionaire, there is one giant story about ICO fraud trumping them all. These stories keep regulators on their toes. ICO fraud cases make it harder for professional investors to gauge whether they’re being played for fools, or whether the new coin is nothing but a cheap poker chip — worth $2 Monday; $0.02 on Friday.
Blockchain startup Tezos from California is being sued for millions from their ICO investors; investors who were told in November that they were really just making a donation, Reuters reported.
Regardless of the lawsuit, their coin is still traded and is now worth around $3 compared to $4.53 at the start of the year, based on Coinmarketcap data. The ICO market, and its cryptocurrency spawn is more gambler’s den than securities market. If anything, it can be compared to penny stock trading, times two, and without existing investor protection against fraud.
Some recent examples:
In September, the SEC charged Brooklyn-based “startup entrepreneur” Maksim Zaslavskiy for selling unregistered securities. Investors in his REcoin Group Foundation and DRC World (also known as Diamond Reserve Club) were told they could expect sizeable returns from the companies’ operations even though there were no operations to be had.
In December, the SEC filed charges against a Canadian businessman named Dominic Lacroix along with his company PlexCorps. PlexCorps marketed and sold their PlexCoin online to investors in the U.S., claiming that investments in the new cryptocurrency would yield a 1,354% profit within a month. The charges were the first filed by the SEC’s new Cyber Unit, an investigative division set up in September to go after fraudulent blockchain investment deals and ICOs, among other things.
Like Tezos, PlexCoin still trades. It is now worth about a penny.
The current system allows for startups to target unaccredited investors who believe they’ve found Willy Wonka’s Golden Ticket. Hedge funds, for example, are not allowed to advertise to retail investors. ICOs, which are just as risky, have been advertising on Google for over a year.
“The current market is terrible,” says Neil Patel, a California-based digital marketing entrepreneur behind a company called Crazy Egg and co-author of The New York Times bestseller, Hustle. “ICOs need to learn to stand out on their own and grow from creating an amazing product instead of creating manufactured hype. They shouldn’t be targeting unaccredited investors and, frankly, shouldn’t be marketing to raise money. Things are getting cleaned up. This is just the start.”
ICO companies geared towards promoting these new crypto-funded startups think there will be growth in industry-specific advertising services. Niches will form to pick up where Google and Baidu have left off.
Some 90% of all traffic going to these startups homepages is coming from the big search engines.
“A ban by Google is still a serious blow to the industry,” says Anar Babaev, co-founder of ICOBox, a KICKICO competitor.
Over the last several months, cryptocurrency investors have been saying they are getting more picky about where to put their money. The big crypto funds are all bombarded with project proposals. The market is quickly professionalizing, and becoming more of an offshoot of traditional venture capital.
“Investors are getting tired of being inundated with projects that have no hope for survival,” says Danilevski, whose KICKICO supposedly screens startups before promoting their new coin offerings on their platform. Retail investors go to sites like KICKICO to see a list of new companies in pre-sale, hoping to get a jump when startups are in discount pricing mode. The website gives investors a sense of which projects are attracting money, and which ones are not.
Danilevski says lead generation from Google accounts for somewhere between 40% and 60% of a new company’s marketing budget.
“You can easily assume the big ICO whales spend between $200 and $250 thousand for Google advertising. Google was their number one priority once Facebook left the scene and prices in banner-exchange networks went through the roof,” he says of digital ad markets.
Where will it go now? Nobody really knows, but the big ICO houses that round up new players and try to groom them for market see this as a potential windfall as it allows them to sell themselves as would-be warehouses, or virtual incubators, for best-in-class crypto-funded companies.
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