Half of ICOs fold within four months: report

Posted: 10 July 2018 4:01 pm

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.”

Difference between an Initial Coin Offering (ICO) and Security Token Offering (STO)

Cryptocurrencies have often been touted as the future of money. However, given their continued proliferation, volatility, security and privacy issues and regulatory barriers, mainstream adoption has yet to transpire.

However, a new report reveals that cryptocurrencies could replace fiat currency in as little as a decade.

The Federal Trade Commission (FTC) has reported that in the first two months of 2018, consumers were defrauded out of $542 million in cryptocurrency scams and will lose a total $3 billion by the close of the year.

You can learn all about different exchanges, understand exactly how to buy and sell cryptocurrencies, calculate your taxes, discover digital wallets to hold assets and explore a list of all the alternative coins on the market.

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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