Most ICOs Meet an Early Death, but People Don’t Seem to Care
Crypto start-ups are infamous for using initial coin offerings (ICOs), a controversial form of fundraising to gather initial funds for their projects. However, the companies raising money may not have a sustainable business idea. This was proved by a recent Boston College study, which analyzed 2,390 firms and deducted that over half of the start-ups rolling out their crypto tokens do not live past four months of their token sale.
Scary Crypto Start-up Stats
According to the study, about 56 percent of firms with ICOs do not survive the first 120 days after they raise funds by selling tokens. The study analyzed tweet intensity from the firms they study to find signs of life in the start-ups. Only 44.2 percent of these companies were able to maintain their momentum for more than 120 days. This shows really grave issues for the cryptocurrency industry as investors’ money could be at risk.
Leonard Kostovetsky, one of the researchers who examined the 2,390 ICOs completed before May, implied that a good investment strategy for investors would be to acquire coins in an ICO and sell them on the first day itself.
However, this isn’t a strategy that retail investors can follow. Therefore, for them, the best exit plan should be selling their holdings within the first six months of the ICO. Kostovetsky emphasized:
“What we find is 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.”
Is It the Official Death of the ICO Industry?
No. ICOs are providing an easier and cheaper fundraising method to several companies around the world. The problem is that returns tend to decline over time. Moreover, a larger number of people are jumping into ICO investments. Kostovetsky said that returns have been falling by four percentage points each month.
He noted that people often look at returns, thinking that an ICO is a good deal. What they fail to accept is a fundamental point of finance that says that return is a compensation for risk. The returns on these platforms are great, but he added that people are investing in projects that have not even been built yet or have no participants. He said:
“There’s a lot of risk. The majority of ICOs do fail.“
Coinopsy suggests that 1,000 tokens have already bid farewell to the market. A recent rise in the number of such studies shows that the ICO market is becoming more dangerous than ever.
Most ICOs Meet an Early Death, but People Don’t Seem to Care was originally found on [blokt] – Blockchain, Bitcoin & Cryptocurrency News.