This study examines the strategic response of crypto projects to the regulatory risk of capital raising through cryptocurrencies. Our theoretical model shows that during periods of low fund availability and moderate regulatory risk, a separating equilibrium prevails wherein good (bad) crypto projects will avoid (seek) raising capital in countries with regulated crypto markets. To show that crypto projects make strategic decisions to restrict investor participation, we use a sample of initial coin offerings (ICOs) between January 2018 and May 2020. We show that ICOs with investor restrictions have a higher likelihood of fundraising and of long-term success. Our results are consistent with projects signaling their quality by restricting investor participation amid increasing regulatory risk and weakening funding environment.