Crypto ICOs Are Even Riskier Than You Thought

Crypto ICOs Are Even Riskier Than You Thought

about 4 years ago2 mins

Initial coin offerings (ICOs) – used to raise money for cryptocurrency projects – lost money for investors an excruciating 92% of the time in 2018. It just goes to show how careful you have to be when dabbling in new markets…

What does this mean?

A new study from the Technical University of Munich examined 2,430 ICOs held in 2018, which, together, raised more than $14 billion. The study’s finding? That the vast majority of the ICOs were in the red after six months. While a handful of tokens returned more than five times their value over that period, about two-thirds lost more than 80%.

(Source: Mathias Fromberger and Lars Haffke)
(Source: Mathias Fromberger and Lars Haffke)

Why should I care?

Investing in anything carries some risk. Even in the much more established world of stock markets, the newest shares can have a tough time after a company’s initial public offering (IPO). Since the turn of the century, the average newly listed share has fallen 2.1% over its first six months (just take a look at table 20-4 of this report).

But at least IPOs are regulated: companies are forced by law to publish a ton of information about their finances before they accept the public’s cash. That’s not even nearly the case for ICOs.

It’s worth keeping in mind that 2018 was a particularly rough year for crypto, as the sharp run-up in prices over the prior 12 months came crashing down. Things weren’t quite so bad for ICOs in 2017, but it’s all relative: a previous study from the same authors of this one found that “just” 44% of ICOs in 2017 had lost money six months after issuance.

We’ll have to wait a while for 2019’s data to be crunched. Still, that was hardly a stellar year for ethereum – the blockchain technology on which more than 90% of ICOs in the study are based. So maybe don’t hold your breath for too much of a turnaround…

Ethereum ended 2019 almost unchanged (Source: Coindesk)
Ethereum ended 2019 almost unchanged (Source: Coindesk)
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