A new study released by the Boston College Carroll School of Management has placed the post-initial coin offering (ICO) survival rate of cryptocurrency startups at just 44 percent.
Penned by Prof Leonard Kostovetsky and Hugo Benedetti, the study examined more than 4,000 ICOs that raised a total of $12 billion in capital between January 2017 and March 2018, and it contains a number of interesting insights.
Using data gathered from ICOdata, ICOdrops, ICObench, ICOrating and ICOcheck, the study determined that initial coin offerings in general are significantly underpriced because the ICO market is still immature. As a result, the average rate or return from the token sale price to the opening market price is about 179 percent, over a holding period of just 16 days.
The research also found that $11.5 million is the average amount raised in a successful ICO, although this figure is somewhat skewed by “mega-ICOs.” A more accurate picture of how much is raised on average is given in the report as the median amount raised, which comes to $3.8 million.
Only 48 percent of completed ICOs included in the study sample declared figures higher than zero for capital raised. Of the remaining 52 percent, a number of projects raised capital and continued with the project without declaring how much they raised, and some raised capital without achieving their softcap goal, resulting in refunds to investors. Others were ICO scams with promoters who stole investor funds, and the remainder were token sales that were announced but never actually took place.
A very interesting insight revealed by the study is that there is a direct link between an ICO’s level of activity on Twitter and its probability of success. According to the data sample, the average amount of time between the ICO’s Twitter account activation and its start date is eight months, while the median period is three months.
A comparison between length of time on Twitter and ICO success shows a slight correlation between a longer record of Twitter activity and a successful token sale. Listed ICOs have an average pre-ICO Twitter age of 9.4 months, with four months as the median age. The data also shows a strong correlation between regular Twitter activity during and after an ICO, and the amount of capital it raises. This, the researchers are keen to point out, is a correlation and does not necessarily indicate causation.
Notably, the study shows that ICOs with zero Twitter activity five months after they end report a 100 percent failure rate. In other words, the level of activity on an ICO’s official Twitter account after the ICO period is a good proxy for measuring the health of the ICO. Using this method, the study’s authors determined that the survival rate for these startups after 120 days is 44.2 percent.
The study, titled Digital Tulips? Returns to Investors in Initial Coin Offerings is available in full here.
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Last modified: March 4, 2021 4:04 PM