July 11th, 2018: Initial Coin Offerings (ICOs) have been the crowdfunding method taking the fintech industry by surprise the past few years. Even with an incredibly successful year of fundraising in 2017, the amount of funds raised in 2018 so far already beats the amount raised on 2017, and we’re only halfway through the year. With that fundraising comes some downfalls, however, as new data suggests that the majority of ICOs are live less than 120 days from their official launch.
Research published by academics at Boston College indicated that less than half of all ICOs are still around after the 4 month mark. The authors, Hugo Benedetti,a Ph.D. candidate, and assistant professor at the Carroll School of Management, Leon Kostovetsky evaluated the lifespan of the cryptocurrency projects in their paper titled “Digital Tulips? Returns to Investors in Initial Coin Offerings.”
The two researchers looked at a total of 4,003 ICOs in 2017 that raised a collective $12 billion in funding. Then, as a way of monitoring the activity of the various cryptocurrency projects, the team of researchers monitored the official Twitter accounts of each team. While Twitter may seem like an odd metric for measuring how active someone is online, Twitter is one of the more popular social media outlets in the cryptocurrency world, especially for verified accounts to keep the cryptocurrency community updated with events unfolding in the space. After looking at all the data, the researchers concluded that 56% of ICO-funded startups failed within just 4 months of their ICO. After 4 months, more than half of the companies that ICO’d are out of the picture. Often with no more social media, no more online community engagement, and sometimes no website anymore.
Best Bang For Your Buck
Along with the realization that so many cryptocurrency projects fail so quickly after an ICO, the researchers also found the best time to purchase and then sell coins or tokens acquired from an ICO. According to Benedetti and Kostovetsky, the best time to sell cryptocurrencies acquired via ICO is within the first month the coin or token has been listed on an exchange.
While this isn’t an option for many investors (given the current difficulty of ICOs in the United States right now), for those who can invest via ICOs, it’s in your best interest, according to the statistics, to sell sooner, rather than later, after the first cryptocurrency exchange listing.
To learn more about the research or read through the entirety of the 54-page paper, click here for “Digital Tulips? Returns to Investors in Initial Coin Offerings.”