A recent study, based on publicly available information and sources, claims that nearly 80 percent of the initial coin offerings (ICO) are scams, and only a meager 8 percent of the floated ICOs manage to reach the trading stage on the various cryptocurrency exchanges.
The New York-based Satis Group LLC, a premier ICO advisory company which also works as a digital asset focused investment bank, conducted the study based on the publicly available sources.
Study of ICOs
The study was performed by picking the ICOs that had a minimum market cap of $50M and were expected to go into active trading. These ICOs were then categorized into six different groups, namely, Scam, Failed, Gone Dead, Dwindling, Promising, and Successful.
The first three groups formed the part of ICOs that formed the “Failed to List” group – that is, they failed to list and trade at all. The last three groups formed the part of ICOs that can be called “Succeeded to List” as they went on to list and trade on the designated virtual currency exchanges, though with different final outcomes post listing.
The study defines Scam ICOs as those that expressed usual availability like any standard ICO with no apparent red flags during the normal promotional activities. However, they turned out to be scams. The Failed ICOs were those which managed to raise full/partial funding during the ICO process, but they did not complete the entire process and were abandoned mid-way, and/or refunded the investors’ money due to inadequate ICO funding. The Gone Dead also managed to raise money as required through the standard ICO process, but failed to list on the exchanges for the necessary trading due to other challenges and complexities. (See also, $9 Million Lost Each Day In Cryptocurrency Scams.)
Among the later group of three that got listed on the exchanges, the Dwindling ICOs are defined as those that “had one or less of the following success criteria: deployment (in test/beta, at minimum) of a chain/distributed ledger (in the case of a base-layer protocol) or product/platform (in the case of an app/utility token), had a transparent project roadmap posted on their website, and had Github code contribution activity in a surrounding three-month period,” which they refer to as Success Criteria. Promising, then, would have an ICO encompassing two of the criteria, and finally Successful would, of course, have all criteria.
The study results reveal that of the whole pie, a whopping 81 percent of the ICOs turned out to be scams. Another 6 percent fell into the Failed category, and 5 percent had Gone Dead, taking the total for “Failure to List” group to 92 percent. (For more, see What's a Cryptocurrency Exit Scam? How Do You Spot One.)
Only around 8 percent went on to the trade on the designated cryptocurrency exchanges. Of these 8 percent that traded, 4.4 percent were classified as Dwindling, while 1.8 percent were labeled as Promising and the rest 1.9 percent turned out to be Successful. Among this group comprising a total of 187 ICOs, 63 (34 percent) qualified as Dwindling, 37 (20 percent) qualified as Promising, and 87 (47 percent) were found to be Successful.
The study further delves into the categories of various market cap ranges for the “Succeeded to List” group.
Within the 24 “Succeeded to List” ICOs that had more than $1 billion market cap, 19 (79 percent) were found to be Successful, 5 (21 percent) were termed as Promising, and none as Dwindling.
Among the 12 “Succeeded to List” ICOs that had market cap in the range of $500 million to $1 billion, 9 (75 percent) were Successful, 1 (8 percent) was Promising, and 2 (17 percent) were found to be Dwindling.
At the other extreme, among the 76 “Succeeded to List” ICOs that had market cap in the lower range of $50 million to $100 million, only 18 (24 percent) were Successful, 17 (22 percent) were Promising, and the majority 41 (54 percent) were found to be Dwindling.
The breakup indicates that even within the small 8 percent of the ICOs that succeeded to list on the exchanges, those that were higher valued in terms of the market cap had the biggest proportion of Successful ICOs. The proportion for Successful ICOs goes down linearly as the market cap size of the ICO comes down.
The opposite is true for Dwindling ICOs. There were no Dwindling ICOs in the topmost market cap category of $1 billion plus, their proportion increases as the market cap range decreasees, and they took the maximum share within the lowest $50 million to $100 million market cap range, as per the study results. (For more, see Beware of these Five Bitcoin Scams.)
Investing in cryptocurrencies and Initial Coin Offerings ("ICOs") is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or ICOs. Since each individual's situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date this article was written, the author owns no cryptocurrencies.