In what may be a first of its kind analysis, a team at Boston College recently published a study that analyzed 4003 “executed and planned ICOs” for short and longer term performance. In “Digital Tulips? Returns to Investors in Initial Coin Offerings,” the study authors found “evidence of significant ICO underpricing, with average returns of 179% from the ICO price to the first day’s opening market price . . . .” In other words, those who purchased coins in an ICO could, on average, sell those coins on the first day of coin trading for a large profit. Even more impressively, the average “holding period” was only 16 days. While those numbers only apply to coins that actually traded, the authors assumed a 100% loss on coins that did not trade within 60 days of issuance and still concluded that “the representative ICO investor earns 82%.”
These large returns for those with the intestinal fortitude to invest in ICOs may explain their continued popularity among investors. Of course, past performance is never a guarantee of future profits, and the overwhelming majority of the ICOs studied occurred before the SEC began cracking down on ICOs that it views as illegal sales of unregistered securities—a subject we have written about extensively over the past six months. Additionally, the study had some more sobering findings regarding the long-term viability of ICOs, including that about 40% of ICOs are believed to fail within 4 months after coins are issued.
If you are interested in reading the entire 54 page study, you can find it here.
For those with less time on your hands, you can read a succinct summary of the study’s most significant findings here.