Investing in initial coin offerings (ICOs) may not be as lucrative as some investors seem to believe, a new study from Boston College finds.
In the study, researchers found that about 56% of ICOs are more or less abandoned after four months of their ICO. On the flip side, 44% of the ICOs analyzed were still considered to be active after four months.
The researchers conducted the study by analyzing the tweeting activity from the company’s Twitter accounts. A total of 2,390 projects were examined in the study.
The study concluded that the best trading strategy seems to be to sell tokens that have been bought in an ICO on the first day the tokens are listed on an exchange. Many new tokens tend to outperform the broader cryptocurrency market during the first few months of trading, before they start to decline in price.
For example, as reported in May, a separate study by two academics of the Carroll School of Management at Boston College showed that ICOs are often severely underpriced. Compared to the price of the token on its first day post-release, returns for holders average at around 179% over a holding period of just 16 days on average, according to the study.
Meanwhile, in an interview with Bloomberg, one of the researchers behind the recent study, announced in July, assistant professor Leonard 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."
For example, a recent survey in Canada showed that if you’re launching an ICO, most of the surveyed Ontarians will not care about your product, your team or if you’re changing the world: 7 in 10 ICO participants care more about whether they can trade the coin or token being offered. At the same time, should something go wrong, they don’t know where to turn.
Also, as Cryptonews.com has previously reported on, the crypto graveyard has been filling up, as many low-quality ICOs have thrown in the towel during this year’s bear market.
However, over 537 ICOs conducted in the first five months of this year raised a combined total of USD 13.7 billion – more than the sum of all ICOs before this year, starting 2013, as reported.