During the 2017 cryptocurrency boom, a huge batch of new players decided to be involved in the market with initial coin offerings. However, amid the market hype, the Boston College Carroll School of management conducted a study with a sample size of over 4000 ICOs revealed that around 56% of the crypto startups vanish after raising money through the initial token sales which further leads to a substantial decline in value for investors who decide to possessed their coins for more than 60 days.
The two researchers involved—Leonard Kostovetsky and Hugo Benedetti explicitly pointed out that only around 44.2% of the new ICO startups survived for more than 4 months after the initial launch. This phenomena results in less ICO projects able to establish and survive in the depressed market despite the excess number of development teams which aim to capitalized the quick riches from last year cryptocurrency boom. The findings of the pair are based on the careful analysis on the relationship between the numbers of Twitter user in the official cryptocurrency account and the market capitalisation of the particular coin.
The phone interview with Leonard Kostovetsky
“What we find is that once you go beyond three months, at most six months, they don’t outperform other cryptocurrencies. The strongest return is actually in the first month.”
During the phone interview, Leonard Kostovetsky pointed out that the safest strategy to invest in cryptocurrency is to sell the acquired ICO in the first day. Although it is not the most lucrative strategy and many individual investors are not able to involve in the ICOs, Leonard Kostovetsky still believes that all investor should sell their coins as soon as possible, preferably within the first six months.
“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.”
In short, the study conclude that the return of investment for ICOs are experiencing a steady decline and becoming an increasingly riskier investment option due to the extreme volatility of the crypto market. Leonard Kostovetsky warns against investors who attempt to pursue for instant wealth by involving themselves in ICOs as majority of them do fail according to their study.