According to findings from a recent study, about 56% of startups fail within four months of the launch of their Initial Coin Offerings (ICOs).
This study was conducted by researchers Leonard Kostovetsky and Hugo Benedetti from Boston College Massachusetts. Kostovetsky works as an assistant professor at the Carroll School of Management in Boston College, while Benedetti is a PhD student in finance at the same school.
The two researchers used Twitter activity as the basis of this study. They assessed the intensity of crypto startups’ Twitter posts to analyze signs of life. Basically, the study checked how active these startups were on Twitter when they launched their ICOs and how long did the activity continue once the ICOs were closed. The assumption taken here is that if there were no more Twitter feeds, then the project had died.
Conclusions of the Research
The team used Twitter data from 2,390 startups that completed their ICOs in May this year. The final analysis of these startups showed that only 44.2% of the ICOs were still “alive” (showed any activity) after 120 days of their launch.
The research’s deep dive analysis of this data also showed that those ICOs that managed to list themselves on exchanges had the best bet of survival. The report showed that 83% of the ICOs that did not list themselves on an exchange or did not report capital died within that 120 day period.
Of the ICOs that reported capital but did not list themselves on an exchange, 52% died within 4 months of the ICO closing. And finally, of the ICOs that were listed and reported capital, only 16% died in the early stages of their existence.
Return on Investments in ICOs
Kostovetsky’s and Benedetti’s research also looked at what value ICOs have as investments, as well as what kinds of returns were garnered over various time frames. The team found that ICOs still continue to generate abnormally high average returns as compared to IPOs and that the value of the cryptocurrencies continue to climb for up to 6 months after the ICO is closed.
The paper stated that average returns on investments are as high as 179% during the ICO pricing release to the first day of markets opening. Even after deducting 100% for ICOs that hadn’t listed their cryptos and making adjustments for that asset class, the returns were still a whopping 82%.
While the results of the research are shocking, they need to be taken with a certain amount of skepticism. This is because the data sample used is activity on Twitter in relation to the launch of an ICO. However, it is entirely possible for projects to continue existing without being active on social media.