With the ICO world maturing, there has been research done by multiple entities in recent months regarding their effectiveness for investors. There has been much made of the fact that a lot of ICOs never make it off of the ground, despite good funding. A recent study showed that 92% of ICOs failed within the first 12-18 months. This is hardly reassuring for those looking to invest in an idea they find intriguing. Like most things in life, common sense goes a long way. Many of these ICOs that have flopped, are quite obviously scams. Investors need to resist the urge of buying, for fear of missing an opportunity. Proper due diligence should always be done on the company that you are investing in. The American regulatory committee, the SEC, recently released a working example of a scam ICO. They developed an entire fake website to demonstrate a potential fraudulent ICO. Hopefully the public visits this site to see examples of what an illegitimate company will look like when hosting a sale.
Despite the shortcomings of early ICO projects, there have been positive reports contradicting the findings of the China Academy of Information and Communications Technology (CAICT). Boston researchers recently completed a study tracking the realized returns vs. time frames on multiple ICO projects. It was found that on average, those that participated in these coin offerings saw over an 80% return on investment. This even accounted for the many ICOs that simply flopped. The study went on to detail that the longer the investment was held, the better the return by great margins. Unfortunately due to the infancy of the industry, data points beyond a year are slim – as most projects are still younger than 1 year at this time.
Although multiple nations have banned ICOs due to their unregulated nature, the tide seems to be turning. South Korea, which accounts for a very large chunk of cryptocurrency trading, is said to be expected to reverse their ban on ICOs very soon. Back in September of 2017, the country banned ICOs – following suit after neighbouring China did so roughly a month earlier. At least for Korea, this ban appears as though it may be lifted soon. Recent reports have seen the South Korean National Assembly vie for a reversal of the FSC’s decision 8 months prior. If a reversal happens, this will alleviate a lot of fears towards cryptocurrency in one of its greatest markets. No doubt it would be a boon to the industry as a whole.
Overall, ICOs are as risky as it gets, in an already risky industry. We have seen studies show the high risk of failure, and studies showing the high rate of return. If properly researched, a well-run ICO will prove to be very lucrative for both investors and companies alike. It is a fantastic method of raising funds, and opening up opportunities to those that would never have the chance to take participate in traditional finance. Despite regulatory framework currently being developed to govern ICOs, don’t expect them to disappear. If an ICO is legitimate, and the company hosting it is reputable, there shouldn’t be issues with adhering to guidelines set in place.