Ernst & Young: Why ICO Investors Burned Down 66% of Money

The beginning of 2018 was promising for the ICO: during the first half of the year, initial coin offerings have gathered $6.3 billion. This is 118% more than the amount of fundings that was gathered during entire 2017! This almost involuntarily makes anyone think that maybe investing in ICO is not such a bad idea after all. Because despite all the criticism, there are always chances that you have chosen the right one and you are going “Straight to the moon.” And this is understandable since at this moment ICOs have gathered staggering $21 billions, which is obviously impressive.

However, just like most first impressions, this one is also false. Let’s start with the numbers and check the EY study up close and personal. According to their data, most of the people that invested in ICOs of 2017 has earned nothing. 86% of coins made from the ICOs from back there are traded below the price they were listed for, and 30% of them has lost all their value. So basically, the average investor in projects of 2017 can only show 66% losses in the portfolio.

Out of 141 top ICO projects that have gathered 87% of all the financing, only 29% of them have managed to get things done. Out of this number, seven projects also accept fiat money, which is decreasing the value of their offerings to the crypto centered investors. 71 % of the projects have zero representations on the market.

According to the opinion of the Richard SHIBI, 9 out of 10 startups in the crypto are doomed from the starters, since traditional economy rules apply to them just as well. “Lack of experience by the founders, under-estimating the R&D efforts which needs to bring a product to life, Regulations, FUD and lack of adoption - I think this covers at least 90% of the cases why ICOs fail and only one makes it all the way“, - considers the expert.

But sure, some projects have managed to make money, back then. Those are ten projects centered around creating their blockchain infrastructure. However, there are zero reasons to believe that they can get a sizable part of the market just for themselves.

As hard as it gets

So, after those numbers, one can get a fairly reasonable question: Should you be optimistic when it comes to the initial offerings of 2018? The answer is not that easy. First of all, prices for maintaining the ICO has skyrocketed. In the article sent to us by our partners from the ICObazar they show that back in 2017, the initial offering would’ve cost you $200-300k. In 2018 the average price tag is one million. The price has climbed 400% mark.

This leads us to the second issue. More and more projects that look super successful do not have any reasons to exist. An excellent example of this is Ðogecoin, which is basically a joke, that can be compared with the famous “Potato Salad” project when a guy named Zack Brows has put up a joke pitch asking people to crowdsource $10 for a bowl of potato salad. At the end of the campaign, this project has gathered more than $50.000. Most of the ICOs are pretty much the same.

This leads us to the third and final issue. Regulators are slowly getting into their senses and start to pay more attention towards. Recent news from the American SEC and France illustrated it quite well - radical changes are coming and fast.

Based on this, it becomes clear that ICOs live out their last days in the form that we know. And examples of the initial coin offerings speak about this more clearly than any figures.

Blockchain history ICO

To understand the issue more, we should look at the history of ICO. The roots of the term go back to the 2013 when Mastercoin project has been brought to the public. This is the point when the ICO mechanism has started. Back then industry had no funds like it does today, but also lacked fails, as spectacular as they get today.

Creators of the Mastercoin decided that their coin is only going to grow in value as time passed and held a tokenized crowdfunding, lasted for a month. During this period holders of the bitcoin were able to swap them for the Mastercoin, that gathered $500k to the creators of this first, proto-ICO. This very modest amount of money has opened the pandora’s box of the ICO.

In the next year, everything started to gather more and more money. A good example of that is Tezos Foundation ICO that has managed to get an outrageous amount of funds - $232 mln.

However, personal pride has ruined everything. Foundation’s chairman, Johann Gevers and one of Tezo’s creator, Arthur Breitman began a real war against each other. This triggered a chain reaction and panic among the investors. In a matter of weeks, common bickering has led to the 75% drop of their digital asset. Sure, they do exist, but Tezos is unable to aspire towards the role of the upcoming leaders in the blockchain or has any substantial weight to differentiate itself among its rivals.

And the next year became dawn of the “Dark age of ICO” when a useful tool for gathering funds became a real frontline. Gathered funds have reached hundreds of millions, and scams were becoming more and more elaborate. According to the words of Nikolay SHKILEV, Ph.D., Blockchain expert and Top ICO/STO Advisor, this is directly related - big money always lure crooks and thieves of all kind.

“90% of the projects were making a primitive website, pitched an idea and promised to get it done in 2020 or even later. All they needed to do is adding a couple of buzzwords here and there, and “blockchain” and investors were ready to rain money on any project. And this does not mean that everyone planned to scam investors from the starters, people just wanted easy and fast money. But when they were getting it - they had zero ideas about the way to manage these investments since most of them had no previous experience in running a company”, - explained the expert.

Leving ICOs

If you think that experience of the previous years has taught the ICO industry something, then you are wrong.

For example, take the CIVIL startup, which held an ICO in September 2018. They wanted to create a revolutionary platform in the media. They received significant support from major players: the New York Times, NBC, CBS, CNN, and many others have predicted that project will be successful and has a bright future.

Civil collected slightly less than $1.5 million, which is infinitely far from the minimum they required - $8 million, and just comically small if keep in mind that their hard cap was $20 million. And if you’ll look objectively, they collected even less than that somewhat around $350 thousand, because their partners-ConsenSys invested $1.1.

Nikolay SHKILEV believes that this situation is natural: "This is the time for serious players that know how to build a real business. That is why in the near future there will be a high demand for stablecoin, asset-backed and security tokens. The evolution of the ICO market happens right in front of our eyes because now it includes serious guys.”

It’s evident that ICOs are not “about to die off” as many claim, they are getting for their next evolutionary step, where fewer investors toss money into the bonfires of their ambitions, and more of them will use common sense.