Study Finds: Over Half of ICOs Fail Within Four Months
Boston College Carroll School of Management published a study that states 56% of Initial Coin Offerings(ICOs) fail within four months. In the last two years, it has been a big trend to create your own cryptocurrency through an ICO. However, this study has shown that more than half of these fail in less than 120 days.
Hugo Benedetti and Leonard Kostovetsky published this study named ‘Digital Tulip’ that extrapolates on the bleak nature of ICOs. They made this conclusion by analyzing data from more than 1000 cryptocurrency twitter accounts. They found that only 44.2% of these accounts were still tweeting after 4 months and therefore concluded that the others had died out. They also found a statistically significant relationship between the number of Twitter users and the market capitalization of a coin.
The study said,
For each 1% increase in users, the market capitalization increases by 1.2%, which is consistent with the increasing returns to user adoption in peer-to-peer platforms where these tokens are to be used for economic activity.
They calculated the 44.2% survival rate across three types of ICOs. Firstly, those that aren’t listed on any exchange and don’t report raising any money. For this kind, the survival beyond month 4 was only 17%.
Second were those ICOs that report raising capital but aren’t listed on any exchange. The survival rate for this category was 47%. And thirdly, those that list on an exchange reported a high survival rate of 83% beyond the 4th month.
This shows that the survival rate is positively correlated with both raising capital and even higher with listing on an exchange. The researchers also added,
Since most of the capital to crypto-companies go to firms in the last category, our analysis indicates that the fraction of funds invested in firms that become inactive after the ICO (potential scams) is only 11%
They also stated that after listing, a lot of ICOs gained popularity because tokens are sold to investors at a significant discount. However, the researchers also found that the returns to ICO investors have declined over time.
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