More Than Half of ICOs Fail Within 4 Months, Study Suggests

While over 4,000 ICO projects have managed to raise a combined total of around $12 billion to date – and most since January 2017 – a majority of them fail within four months of their token sales, a new study suggests.



The 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 barometer of health.

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.

In determining the lifespan of an ICO, the Boston College team – Hugo Benedetti and Leonard Kostovetsky – chose to use the intensity of Twitter posts to analyze the lifecycle of projects and assumed that no tweets in the fifth month meant that the project had died.

The paper further analyzes the data, suggesting that the safest bet would be for those ICOs that manage to list on exchanges after the token launch:

“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.”

 Token returns

The study also looked at the value of ICOs as investments and the average returns over different time-frames, after adjusting for the overall moves in the value of the cryptocurrency markets.

Benedetti and Kostovetsky found that “in contrast to IPOs, crypto-tokens continue to generate abnormal positive average returns after the ICO,” with token values continuing to climb for six months after launching.

The paper states:

“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%.”

Once trading has got underway, tokens continue to grow in price, the paper continues, “generating average buy-and-hold abnormal returns of 48% in the first 30 trading days.”

Further, the researchers say: “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.”

While the figures may be hard to parse for the non-academic reader, 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.

The paper concluded that, though the figures could indicate bubbles around token launches, they also indicate that there can be high rewards for those that accept the risk of investing in “unproven pre-revenue platforms through unregulated offerings.”


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Author: Daniel Palmer
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Crypto Coin Graveyard Fills Up Fast as ICOs Meet Their Demise

  • More than 1,000 coins declared dead by website Coinopsy
  • Investors have already lost billions to failed crypto projects


That mournful sound you hear? It’s the funeral procession of yet another cryptocurrency.

As the digital money frenzy of the past few years cools, the crypto coin graveyard is filling up. Dead Coins lists around 800 tokens that are bereft of life, while Coinopsy estimates that more than 1,000 have bought the farm.

The carnage is mostly the consequence of failed projects from the thousands of startups that used initial coin offerings to raise billions in funding, and a global regulatory crackdown on questionable practices and scams. Names like CryptoMeth, Droplex and Roulettecoin may have been a clue to the coins’ dim prospects.

“There has obviously been a lot of fraud and hype in the ICO market,” Aaron Brown, a business author and investor who writes for Bloomberg Prophets, said in an email. “I accept figures I have seen that 80 percent of ICOs were frauds, and 10 percent lacked substance and failed shortly after raising money. Most of the remaining 10 percent will probably fail as well.”

 

Fate of Coins with $50 Million-Plus Market Caps

Fewer than 4 percent of ICOs raising from $50 million to $100 million were successful or promising, according to a March analysis from ICO advisory firm Satis Group. Most ICOs were raising money without having an experienced development team or an actual product, just white papers studded with promises.

Blockchain startups are faring worse than their counterparts in other industries. Of 103 companies that received initial seed or angel funding in 2013 and 2014, only 28 percent managed to raise additional funding, according to CB Insights’s October report. That compares with 46 percent of the 1,098 tech companies that raised a second round in the U.S. between 2008 and 2010. Among tech companies, 14 percent went on to a fourth round, while only 2 percent of the blockchain companies did, the researcher found.

“I don’t think we found the killer app yet,” said Arieh Levi, an analyst at CB Insights. “It just seems like there’s been a lot of projects tried, but there aren’t really many users of blockchain protocols beyond speculators and traders.”



The failed projects have cost investors billions. Barring outliers like BitConnect, which saw its market cap shrink to about $4 million from nearly $3 billion in December, most of the ICOs that birthed these coins were relatively small, but investors may have still lost as much as $500 million, estimated Lex Sokolin, global director of fintech strategy at Autonomous Research LLP.

The book of the dead is expanding rapidly now that prices have collapsed across the crypto market. The industry’s bellwether, Bitcoin, is down 57 percent this year. And the number of articles declaring its demise is up to 319 since 2010, according to 99Bitcoins. About 80 percent of the 1,586 coins that surveyor Finder.com looked at declined in the week ended June 25, by an average of 19 percent.

“We will see a lot more abandoned ICO that never make it to an exchange,” Richler Vanierwitz of Coinopsy, said in an email. “ICO investment will become very unprofitable.” ICOs have raised $11.75 billion this year alone, according to CoinSchedule.

But there is always the afterlife.

A new breed of crypto undertaker sees this as an opportunity. Startup CoinJanitor has partnered with Dead Coins, saying it wants to help investors and developers recycle failed coins with market caps of under $50,000.

“We take as many coins off the market as possible,” CoinJanitor Chief Executive Officer Marc Kenigsberg said. “Every time we absorb a project, we have more audience and more marketing reach. Instead of linear growth, we should hit some kind of hockey stick growth. All the tokens we get we destroy, we actually burn them. Turn off the entire blockchain.”

CoinJanitor plans to take over dead projects, and to burn the dead coins. To do so, it’s created its own token.

“Last year, there were many instances where a project that was essentially ‘dead’ was picked up by a developer, who might have been passively mining it, and brought back to life,” Lucas Nuzzi, director of technology research at Digital Asset Research, said in an email. “Out of nowhere, a new version would then come out and the price appreciated, regardless of the substance of the changes made by the developer. This has not happened frequently this year, and it’s hard to discern what are valid inflows versus potential spoofs.”

Alas, most of the dead coins remain in the grave.


Here at Dollar Destruction, we endeavour to bring to you the latest, most important news from around the globe. We scan the web looking for the most valuable content and dish it right up for you! The content of this article was provided by the source referenced. Dollar Destruction does not endorse and is not responsible for or liable for any content, accuracy, quality, advertising, products or other materials on this page. As always, we encourage you to perform your own research!
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Author: Olga Kharif
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