Findings by two major studies published recently have highlighted the increasingly dire prospects of the once-promising ICO market.
EY has revealed the woeful performance of most of the cryptocurrency projects which made initial coin offerings in the last 12 months. The EY ICO report deals exclusively with “The Class of 2017”, the first wave of cryptocurrencies launched onto the market shortly before the price boom of December last year.
The study revisits the projects which made up 87% of the total ICO funding for 2017 (across 141 separate cryptocurrencies) and measures their progress over a 12 month period. Whilst it’s common knowledge that the market has contracted in 2018, EY’s findings still make for a pretty grim read.
Of the 141 projects considered, 86% have tokens whose trading values are below their original listing price. Of this group, 30% are bereft of any practical monetary worth and have, according to EY, lost “substantially all value.” There will be few holders of cryptocurrency who have failed to notice the decline in the value of their portfolio since the beginning of the year, but in case further confirmation were needed EY’s ICO report states that;
“an investor purchasing a portfolio of The Class of 2017 ICOs on 1 January 2018 would most likely have lost 66% of their investment.”
Looking more closely at the products themselves, the study found that only 29% of the projects which received ICO funding in the studied period now have a functional platform or prototype, a mere 14% improvement from December 2017. Even more worryingly, 71% have, “no offering in the market at all.”
So, the ICO market appears bleak but perhaps as well as highlighting the problem, EY may also hold the solution.
In the years leading up to the economic crash of 2008, another struggling financial enterprise, Lehman Brothers, was staring into the abyss and sought out the services of a large accountancy firm to help deceive its investors about the condition of the company. The firm they hired to undertake what has since been labelled in a major lawsuit as a, “massive accounting fraud” was one Ernst and Young, latterly EY. Since then, EY has paid more than 100 million US dollars in damages and is still, somewhat remarkably, well respected in its field. So, if any of the failing ICOs listed in the report are reading this, a word of advice;
If you have a problem that only “creative” accounting can solve, if no one else can help, and if you can find them….maybe you can hire… The EY-Team.
Elsewhere, a second study, commissioned by New York-based Satis Group LLC, has broken down ICOs into 6 groups: Scam, Failed, Gone Dead, Dwindling, Promising, Successful.
“On the basis of the above classification … we found that approximately 81% of ICO’s were Scams, ~6% Failed, ~5% had Gone Dead, and ~8% went on to trade on an exchange.”
Scams are classified in the study as;
“Any project that expressed availability of [an] ICO investment (through a website publishing, ANN thread, or social media posting with a contribution address), did not have/had no intention of fulfilling project development duties with the funds, and/or was deemed by the community (message boards, website or other online information) to be a scam.”
Failed ICOs are defined as having;
“Succeeded to raise funding but did not complete the entire process and was abandoned, and/or refunded investors as a result of insufficient funding (missed soft cap).”
Whilst those considered Gone Dead are any ICO to have completed funding,
“[but] was not listed on exchanges for trading and has not had a code contribution in Github on a rolling three-month basis from that point in time.”
Positing a slightly more optimistic view of the ICO landscape, MIT published Initial Coin Offerings and the Value of Crypto Tokens, authored by Christian Catalini and Joshua S. Gans, who found that only between 5% to 25% of ICOs are frauds.