Rule of 56% – ICO fail number rises
While the cryptocurrency market is quite live, it is still far from its autumn 2017’s heights. Nevertheless, the ICO start-ups market shows the constant growing tendency – due to official statistics of ICORating, the amount of ICO projects in 2018 had significantly grown. The overall market dynamic is definitely positive. The volume of funds attracted worldwide through the ICO for the first quarter of 2018 was $ 3.3 billion. For comparison, in 2017 with the help of ICO funding model, $ 6.1 billion was raised.
For now, not only scam projects and fraud are the worst enemies of the investor though. While more than 4,000 ICO projects have managed to raise a combined total of around $12 billion during all the time – a majority of them fail within four months of their token sales, a new study suggests.
The latest research, conducted by a small team at Boston College in Massachusetts, found that a mere 44.2 percent of token projects are active into the fifth month or beyond, using their social footprint via Twitter as a live indicator.
About 56% of ICO start-ups ceased to exist during the first four months after the successful end of the token sale. According to many analysts, the most secure investment strategy for various tokens is the sale on the first day of trading. Either way, almost all investors get rid of coins purchased under the ICO in the first six months.
More than 1,000 different tokens have already ceased to exist, and overall return on investment is steadily declining.
It should be noted that the monthly investment in ICO projects still holds over $ 1 billion. This trend has been maintained since the beginning of 2018.
While the figures are perhaps shocking, they should maybe be taken with a pinch of salt, as the methodology of the study leaves some wiggle-room for ICOs to exist beyond that 120-day time-frame and not be indicated so in the data.
The tokens usually continue to grow in price, generating average buy-and-hold abnormal returns of 48% in the first 30 trading days.
Dead on arrival
Going for an experiment in determining the usual lifespan of an ICO project, the team behind the research, Hugo Benedetti and Leonard Kostovetsky, chose to use the availability and intensity of Twitter posts to analyze the lifespan of projects and found out that tweet absence during the fifth month meant the absolute project fail or, so to say, it’s death.
The analytics data of the research indicates that the safest way of performing for the projects would be managing to list on exchanges after the token has been launched:
“Breaking it down by category, 83% of the 694 ICOs that don’t report capital and don’t list on an exchange are inactive after 120 days. For the 420 ICOs that raise some capital but don’t list, this figure falls to 52%, and for the 440 ICOs that list on an exchange, only 16% are inactive in the fifth month.”
Moreover, their work beside went on with determining the value of ICOs as investments and the average returns over the different time-frames, after going on for the overall moves in the value of the cryptocurrency markets.
Fact is, the researchers Benedetti and Kostovetsky found that “in contrast to IPOs, tokens continue to generate abnormal positive average returns after the ICO,” with token values continuing to climb for six months after launching.
“We find evidence of significant ICO underpricing, with average returns of 179% from the ICO price to the first day’s opening market price, over a holding period that averages just 16 days. Even after imputing returns of -100% to ICOs that don’t list their tokens within 60 days and adjusting for the returns of the asset class, the representative ICO investor earns 82%.”
Further, the researchers say that startups sell their tokens during the ICO at a significant discount to the opening market price, generating an average return for investors of 179%, accrued over an average holding period of 16 days from the ICO end date to the listing date.
During his interview, Kostovetsky told Bloomberg that “once you go beyond three months, at most six months, they don’t outperform other cryptocurrencies.”The strongest return is actually in the first month,” he added.
Anyway, the overall conclusion shows that, despite the shocking figures of failed projects, high rewards could be achieved for those that accept the risk of investing in “unproven pre-revenue platforms through unregulated offerings.”
However, the market future looks promising as a lot of promising startups in different areas continue to flourish every passing week.