56 Percent of ICOs Become Worthless Four Months After Crowdsale, Says Boston College

Jul 10, 2018
ICOs Initial Coin Offering

A recent study by Boston College reveals that cryptocurrency ICOs have a short shelf life. Despite the hype and the millions of dollars raised by these projects, many of them do not last for more than a few months. Of the over 1,600 cryptocurrency tokens in the market today, a large percentage of them are ICO tokens. According to platforms like Coinopsy, most of these tokens are worthless.

Diminishing Returns from ICO Tokens

According to the research team of Leonard Kostovetsky and Hugo Benedetti, 56 percent of ICO tokens become worthless four months after the ICO crowdsale. The study covered 2,390 ICOs that were finalized before May 2018. The research pair examined the Twitter activity of these projects as a metric to determine their status. They observed that only 44 percent of these projects still had some significant Twitter presence 120 days after the close of their crowdsale campaign.

The study also found out that it was better to sell ICO tokens on the first day of their release. In a phone interview with Bloomberg, Kostovetsky, the assistant professor at Carroll School of Management at Boston College said:

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.

On the subject of returns, the researchers declared that there is a significant observable diminishing return for ICO tokens. The study claims that cryptocurrency startups have become better at realistically pricing their tokens thus eliminating the unsustainable returns that were a feature of 2017. Commenting on the diminishing returns, Kostovetsky said:

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 risk. The majority of ICOs do fail.

Exit Scams and Pump and Dump Schemes

Apart from the lack of utility for many ICO projects, there is also the problem of fraudulent projects in the ICO space. Exit scams and pump and dump schemes litter the cryptocurrency crowdsale landscape. The projects are designed to fleece investors of their money in exchange for worthless tokens.

The scam works by designing a so-called revolutionary platform with a vaguely defined utility. The next step involves creating a token that the developers assure investors will become the next Bitcoin or Ethereum. At the time of the sale, the influx of investor funds artificially inflates the market value of the token. Once the startup team has amassed enough funds, they dump the tokens and the price plummets.

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I bumped into Bitcoin in 2010 while I was still engaged in the fierce battle of obtaining my Engineering degree. I found the content of Nakamoto’s white paper fascinating since it reminded me of the works of legends like Haber and Stornetta. When I am not writing about cryptocurrencies, I am either attempting to beat my scrabble high score or engaged in some internal existential debate.

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