New Study Finds that Only 44% of ICO Projects Survive After the First Four Months
More than half of cryptocurrency startups that raise money through token sales vanish within the first four months, according to a recent study by researchers at the Boston College.
The researchers – Hugo Benedetti and Leonard Kostovetsky – created a dataset of 4,003 ICOs, including 2390 ICOs which were completed before April 30, 2018, and 1613 ICOs which are ongoing as of that date or planned for the future. They found that:
“Startups sell their tokens 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. Even after imputing large negative returns to tokens that are not listed within 60 days, the representative investor nearly doubles her money by investing in an ICO.”
In an interview with Bloomberg, Kostovetsky said that purchasing coins in an ICO and selling them on the first day is the safest investment strategy. He recommended that investors should sell their coins within the first 6 months stating that “once you go beyond three months, at most six months, they don’t outperform other cryptocurrencies, so the strongest return is actually in the first month”.
According to the report, “the first day’s average abnormal returns range from 14% to 16%, 30-day average abnormal returns range from 41% to 67%, and 180-day average abnormal returns range from 150% to 430%.” Kostovetsky, however, cautioned against such investments, saying:
“People often look at returns and say this is a great deal, but we teach in finance that return is a compensation for risk. These are stakes in platforms that have not yet been built, that have no participants yet. There’s a lot of risks. The majority of ICOs do fail.”
The researchers analyzed the activity of the official Twitter accounts of these projects for estimating their survival rate. The study found that the “survival rate for startups after 120 days post-ICO is only 44.2%, assuming that all firms inactive on Twitter in the fifth month did not survive.” It added:
“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.”
Affirming the research findings, Coinopsy, a website tracking dead ICOs, reports that the number of failed cryptocurrency projects has clocked over 1000.