Half of ICOs fold within four months: report
Researchers examined ICO social media footprints to determine the success rate of recent token offerings.
A new digital currency study has revealed that of the thousands of initial coin offerings (ICOs) that were completed before May this year, a little more than half failed within the first four months of listing.
The research report Digital Tulips? Returns to Investors in Initial Coin Offerings, conducted by Hugo Benedetti and Leonard Kostovetsky of Boston College Massachusetts, investigated the social media activity of 2,390 ICOs and discovered that around 56% fizzled within the first 120 days. Their method is outlined below.
We use intensity of tweets from the cryptocurrency official Twitter account after the ICO to estimate that the survival rate for startups after 120 days (from the end of the ICO) is only 44.2%, assuming that all firms inactive on Twitter in the fifth month did not survive.
Digital Tulips? Returns to Investors in Initial Coin Offerings
While these figures may seem overwhelming, using a company’s Twitter footprint as a gauge of success isn’t necessarily foolproof and therefore the study’s results are likely to draw some degree of skepticism.
The research categorized results, determining that the vast majority (83%) of 694 ICOs that didn’t report capital and didn’t list on an exchange were inactive after four months. Of the 420 ICOs that did raise some capital but did not list, only a little more than half (52%) managed to survive. However, of the 440 ICOs that successfully listed on a cryptocurrency exchange, less than one fifth (16%) were inactive by their 150th day.
The study also indicated that there was substantial underpricing among ICOs.
“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,” according to the research.
“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%.”
However, “what we find is that once you go beyond three months, at most six months, they don’t outperform other cryptocurrencies,” researcher Leonard Kostovetsky said in an interview with Bloomberg.
“The strongest return is actually in the first month.”
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