More than 50 Percent ICOs Crumble Within Four Months
Though it might not be a surprising thing to experts, it is a startling revelation for the layman that more than 50 percent of crypto startups crumble within a period of four months. This is after completing the initial coin offerings (ICO), and the result came out from the Boston University’s fresh study. The report comes at a time when the crypto market is going through turbulence.
Before the emergence of the crypto asset, it was the venture capitals that used to fund the startups. Now, they have been using ICO as a fundraising tool and become the most favored one thus making it an overpopulated one, newsbtc.com reported. Undoubtedly, there were instances of coins that never reached the cryptocurrency exchange for trading leave alone as means of payment. Though the first ICO was introduced about five years back, the term became popular only last year as the prices of most of the digital coins reached their life-time highs.
The growth of ICO and the money generated from it is quite significant. For instance, in July 2017, only $140.0 million was raised from the ICO whereas in March this year, it was more than $4 billion. However, the sharp drop in prices has made investors be jittery, and the amounts raised through the ICO dropped to anywhere $1.3 – $2.0 billion in the last two-month period. During the same period, regulators have also undertaken a lot of steps in streamlining their operations.
Interestingly, Boston University’s recent study has analyzed the tweets of startups so that it could measure the lifespan of the entities. In its study, it found that only 44.2 percent of the startups were in a position to survive more than 120 days after the completion of their ICOs. This outcome was based on the assessment of 2,390 ICOs by researchers Leonard Kostovetsky and Hugo Benedetti and that these ICOs were completed before May this year.
If Bloomberg report is true, then there are about 1,000 digital coins that were treated as dead due to either regulatory issues or financial mismanagement. Alternatively, those startups were not good enough right from the start. Significantly, a number of startups, which were termed as scams, also participated in the ICOs.
Interestingly, a business author, Aaron Brown, indicated that he had seen 80 percent of ICOs as frauds while ten percent have lacked any substance leading to failure following the fundraising exercise. He thinks that most of the remaining ten percent would also face a similar fate only. That is not a good sign for the sector that is in the nascent stage.
As far as the right time to exit, the Boston University researchers found that the safest strategy is to lock returns in the first month itself since it would be the strongest return. Kostovetsky 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.”