Blockchain Hype and Its New High
Cryptocurrency and Its New High
From the CPA Centre for Accounting Innovation and Research at the University of Toronto
The growth in cryptocurrency activity and market capitalization has been staggering. For the first time, the value of all cryptocurrencies skyrocketed above $1 trillion in February 2021. Analysts have suggested that Tesla made more from bitcoin in 2020 than from selling cars and batteries.
But does this remain a case of "The Emperor’s New Clothes"?
A study from the CPA Centre for Accounting Innovation and Research examines the "cryptocurrency mania" gripping markets and finds that many entrepreneurs dress their Initial Coin Offerings (ICOs) up in "blockchain hype" to attract unwitting investors.
KEY TAKE AWAYS FROM THE PAPER
Blockchain "hype" exploited for ICOs
Having analyzed 255 initial coin offerings, University of Toronto researchers found more than 80 per cent did not actually need to use blockchain.
In most cases, the ICO’s digital token was not an integral part of its product or service. The issuers had taken advantage of the hype around blockchain to attract capital, the researchers concluded.
"ICOs have exploded in popularity as a highly efficient new mechanism for raising capital for new projects and applications based on blockchain technology," explains M. H. Franco Wong, an accounting professor at Rotman, the University of Toronto’s business school, and one of the study’s authors. He points out that it took a cryptocurrency crash in 2017 to make investors pay closer attention to the underlying blockchain technology in ICO offerings.
"ICO issuers took advantage of the blockchain hype and ICO investors cared less about blockchain technology during the hype," says Professor Wong. "Once the cryptocurrency crash bursts the bubble, ICO issuers can no longer use blockchain as a way to profit from investor sentiment."
CPAs need to stay up to date on crytocurrencies
As discussed in CPA Ontario’s whitepaper Navigating the Brave New World of Cryptocurrency and ICOs, the potential for blockchain-related technology to transform the accounting and finance profession is both exciting and daunting. As investment in ICOs grows, it is increasingly important that accountants and auditors to stay up to date on the technology and regulatory landscape around cryptocurrency. In this way, the profession can help bridge the gap between securities regulators and ICO advocates to accelerate legitimate cryptocurrency innovation and capital formation.