Over 50% of ICOs Miss the Boat
Zac Thompson
More than 50 percent of the initial coin offerings (ICOs) have died in the process months after staging their respective token offerings, a study has found.
Some 44.2 percent of ICO projects are active into the fifth month and/or beyond, using their social footprint via Twitter as their gauge, based on a research conducted by a team from Boston College in Massachusetts. This, despite over 4,000 ICOs have generated a total of approximately $12 billion as of writing, mostly made in January last year.
“Breaking it down by category, 83 percent 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 percent, and for the 440 ICOs that list on an exchange, only 16% are inactive in the fifth month,” the study stated.
Unlike initial public offerings (IPOs), crypto-tokens continue to generate unusually positive average returns following the ICO, with token values continuing its surge half a year after its launching.
“We find evidence of significant ICO underpricing, with average returns of 179 percent 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 percent 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 percent,” the research stated.
Prices of tokens keep on rising as it earns “average buy-and-hold abnormal returns of 48 percent in the first 30 trading days,” it added.
“Startups sell their tokens during the ICO at a significant discount to the opening market price, generating an average return for ICO investors of 179%, accrued over an average holding period of 16 days from the ICO end date to the listing date,” researchers said.
Leonard Kostovetsky, one of the researchers, 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.”
In general, the paper stated that ICOs can change the way how startup firms raise money, giving more control to entities, greater liquidity to investors, and giving more investment opportunities to others.
“Our paper shows that ICOs investors are compensated handsomely for investing in new unproven platforms through unregulated offerings… It also shows how ICOs are both similar to and different from IPOs,” it added.
For their study, Kostovetsky and Hugo Benedetti used the intensity of Twitter posts to look into the lifespan of ICO projects. The group presumed that no tweets saying the project had died would surface in the fifth month. Moreover, it left a legroom for ICOs to exist beyond the 120-day timeframe. About 2,390 ICOs were examined for the study.
“While our results could be an indication of bubbles, they are also consistent with high compensation for risk for investing in unproven pre-revenue platforms through unregulated offerings,” the study explained.
