SEC Proposes Regulated ICO Framework Amid Market Shifts

Article by Muyao Shen, Bloomberg

Compiled by Saoirse, Foresight News

The U.S. Securities and Exchange Commission (SEC) is attempting to revive the once-thriving initial coin offering (ICO) business. But the greater challenge lies in finding buyers for a product that investors have already abandoned.

This proposal, announced earlier this month, would reopen public token sales to U.S. investors. Crypto startups could raise up to $5 million annually without completing a full SEC registration, with larger projects allowed to raise up to $75 million per year. Compared to the regulatory crackdown that followed the 2017 ICO boom, this proposal represents a significant policy shift.

But today’s product landscape and market are vastly different.

A decade ago, ICOs often required only a whitepaper, a cryptocurrency wallet, and investors betting that the newly issued tokens would continue to rise in value. In contrast, the SEC’s proposed regulatory framework imposes disclosure obligations and incurs significant compliance costs.

Additionally, there is another layer of uncertainty: while the proposal simplifies the token financing process, the regulatory rules governing trading after token issuance remain complex.

The speculative fervor that once chased hundreds of newly launched tokens has now become highly selective. Bitcoin and a handful of top-tier tokens command the vast majority of attention in the crypto market; traders seeking higher and faster returns have shifted toward products such as perpetual futures and prediction markets. Recently, some speculative capital has even flowed into artificial intelligence-related stocks.

What regulators are focusing on is actually an issue that was more urgent several years ago: providing a legal pathway for legitimate crypto projects to raise funds from the public. But the market has already evolved beyond that.

Tom Schmidt, General Partner at venture capital firm Dragonfly, commented on the stalled CLARITY Act: “This is clearly better than nothing, but the bill would have been more valuable if it had been introduced years ago. What’s most urgently needed now is addressing the issues the CLARITY Act was meant to resolve, not access to funding.”

Since 2025, the volume of token-related transactions by venture capital funds has declined significantly:

The ICO model allowed crypto startups to raise funds by directly selling newly minted tokens to investors, typically in exchange for cryptocurrency assets like Bitcoin or Ethereum. At the industry’s peak in January 2018, monthly ICO fundraising reached approximately $3 billion. This boom was fueled by cheap capital, limited supply, and the market belief that “someone will always buy new tokens at a higher price.” It ultimately collapsed under the combined pressures of falling token prices, regulatory lawsuits, project failures, and pump-and-dump scams.

Signs of retreat are also evident at the professional investor level: venture capital firms have sharply reduced their token trading activity. Many leading industry VCs have expanded their investment scope beyond the crypto space, venturing into artificial intelligence, robotics, and other cutting-edge technologies.

Since the industry peaked in 2018, the number of ICO transactions has continued to decline:

The changing market landscape means that new tokens are now competing for capital not only against thousands of cryptocurrencies but also against an increasing number of speculative assets with better liquidity and clearer narratives.

Even so, some venture capital firms view the SEC's proposal as a significant reset.

Winnie Lau, partner at Strobe Ventures, said: "The market is in a consolidation phase, and this proposal gives me a cautiously optimistic outlook on the future development of digital assets in the U.S. It’s a step in the right direction, providing early teams with a viable pathway to build token networks, raise capital, and innovate in the United States."

For projects that do not focus on meme coins and are genuinely committed to delivering tangible products, this regulatory change is especially significant.

Cosmo Jiang, General Partner and Portfolio Manager at venture capital firm Pantera Capital, said: “The industry has been in a bizarre situation: issuing meme coins is legal, but creating tokens that genuinely generate value is considered illegal—this is completely contrary to how a normal business society should operate.”

This also corresponds to a significant amendment in the proposal: tokens will not be permanently bound by the investment contract at issuance. Once the issuer has completed or permanently ceased the management and operational duties promised to investors, the investment contract may be terminated.

However, legalizing the issuance of utility tokens does not mean the tokens themselves have investment value.

The crypto market has not yet fully recovered from the sharp decline in October last year; even with recent token price rebounds, investors are not willing to invest simply because a project comes with a token.

Carlos Guzman, research analyst at investment firm GSR, said: "The ICOs of 2026 are no longer the ICOs of 2018. The era of raising capital with just a whitepaper and empty ideas is over."

Even with recent gains, gold has still outperformed Bitcoin this year:

Note: Data statistics for asset price changes starting from December 31, 2025.

Bitcoin supporters have long referred to it as digital gold and an inflation hedge, but this logic has not held up this year. Since the beginning of 2026, gold has risen over 7%; even after a recent rebound, Bitcoin remains down nearly 10% for the year.