In this article, we explain why ICOs were in a bubble during late 2017 / early 2018, and why investing in ICOs now is probably a worse move than it was before.

 

Why Did the ICO Bubble Pop?

The bubble of the ICO phenomenon has now officially popped. This can be seen by the fact that only $346 million has been raised across 82 ICOs in the first half of 2019. While this might sound like an outstanding number right off the bat, it helps to put things in perspective through noting that by this time last year, ICOs had raised over $6 billion, or close to 20 times the amount raised during the first six months of 2019. Figures provided by icodata.io, which is one of the most accurate aggregators of ICO data worldwide, demonstrate just how sharp the ICO bubble truly was, and just how out of fashion ICOs have become in the last six months:

Year ICO Funds raised*
2015 $6,084,000
2016 $90,250,273
2017 $6,226,689,449
2018 $7,812,150,041
2019 $346,089,000

* statistics provided by www.icodata.io

 

What is responsible for this massive decrease in ICO interest? In the second half of 2018, it was definitely due to falling market prices – which discouraged the formation of new ICOs – but that still didn’t stop over $1 billion from being raised in the latter six months of the year. The likely culprit is an oversaturation of ICO projects which has seen the blockchain thrown at almost any business that could possibly be imagined. The fact of the matter is, not every component of industry in the world will benefit from tokenization or moving operations to the blockchain.

The boom and bust ICO market of 2017/2018 demonstrated that a lot of projects were launched via ICO only because it was the fad of the moment, and most projects were simply money grabs attempting to cash in on over-eager investors who were hoping to get in on “the next bitcoin.” In a study released in 2018, Bloomberg Research found that 78% of the ICOs conducted in 2017 were eventually exposed as scams, and only 15% went on to have coins or tokens traded on exchanges.

Though a similar analysis has yet to be performed for 2018, things are definitely not looking much better, as can be shown by comparing the location bases for ICOs in 2017 vs. 2018, which demonstrates that projects have migrated out of regulation-heavy areas to offshore “tax haven” countries with less stringent financial regulatory policies. For example, while the Cayman Islands accounted for only 3% of ICO incorporation bases in 2017, they accounted for 40% of ICOs launched in 2018, perhaps suggesting that these companies did not want to face the regulatory scrutiny of countries like the United States.

Even if an ICO isn’t a scam outright, its chances of going on to be a profitable enterprise are very slim. Taking a glance at Coindesk’s ICO Tracker, we can check on the status of some of the biggest ICOs launched in 2018 to see what has become of them so far. For example, in July 2017, there were 12 projects that raised over $10 million by way of ICO; we will go through them individually to check on their current status. To see if they were profitable for their investors or not, we compared their total funds raised to their current market cap value, which while not a perfect measurement of profitability can still yield some idea as to whether or not a project has been successful over the course of the last 12 months. We also compared the average ICO price for a coin/token and its current price, as another indicator of the overall successfulness of a project.

Name Symbol ICO Close Date ICO Size ($mn) Curr. Market Cap. ($mn) % change ICO coin/token price Current coin/token price % change
Rialto.AI XRL 7/3/2017 $10.00 $3.34 -66.60% $0.40 $0.06 -85.00%
OpenANX OAX 7/4/2017 $18.76 $7.40 -60.55% $0.45 $0.11 -75.56%
Polybius PLBT 7/5/2017 $31.65 $4.71 -85.12% $10.00 $1.21 -87.90%
Santiment SAN 7/5/2017 $12.09 $47.65 294.13% $0.27 $0.76 181.48%
Nimiq NIM 7/12/2017 $14.53 $3.11 -78.60% $0.014 $0.0007 -94.80%
ATBcoin ATB 7/12/2017 $10.84 $0.26 -97.60% $1.00 $0.006 -99.40%
Tezos XTZ 7/13/2017 $232.00 $667.30 187.63% $0.47 $1.01 114.89%
InsureX IXT 7/13/2017 $17.27 $0.33 -98.09% $0.16 $0.01 -93.75%
PressOne PRS 7/15/2017 $82.00 $12.57 -84.67% $0.70 $0.044 -93.71%
SONM SNM 7/15/2017 $42.00 $4.58 -89.10% $0.59 $0.013 -97.85%
Pillar PLR 7/17/2017 $18.53 $10.06 -45.71% $0.097 $0.039 -59.79%
Giga Watt WTT 7/31/2017 $18.68 $2.25 -87.96% $1.20 $0.77 -35.83%

 

The results are not pretty, with only 2 coins of the 12 posting gains in the past 12 months – in a period when Bitcoin itself has climbed 16.7%. A couple of the coins had been delisted from Coinmarketcap.com and were considered to be no longer actively traded, though all other coins are currently being traded on at least one exchange. Between these 12 coins, a whopping $255 million of wealth has simply vanished, with the average coin market cap sinking 26% from its total ICO funds raised. Coin holders fared significantly worse, with an average loss of about 44% across all 12 coins. This means that if one had invested $1,000 in each coin during July of last year (a $12,000 investment total), they would have lost about $5,280. Contrastingly, if they would have invested it all in BTC, they would have been up $2,004.

2 of the 12 coins that raised more than $10 million in July 2018 have managed to do quite well for themselves and beat BTC’s performance by a wide margin; those two being Tezos (XTZ) – up 115%, and Santiment (SAN) – up 181%. This goes to show that not all ICOs are failures, and if you are very careful (or lucky) about which investments you choose, it is still possible to turn a profit. However, the factors behind whether a project will be successful or not often shift, making it almost impossible to spot a guaranteed winner. There are a hundred things that can go wrong during an ICO or after its completion, and a hundred things that need to go right in order for it to succeed.

We present to you now a list of the best-performing ICOs since 2017 in hopes that you might be able to find common factors between them. As listed by icostats.com, which compares the price of coins/tokens during their ICO to their current price, here are the top ICOs by Return on Income (ROI) of the last 2 years:

Project Name ICO Date % Change in Coin Price Since ICO
Binance (BNB) 7/14/2017 13724%
Tron (TRX) 8/31/2017 1201%
Basic Attention Token (BAT) 5/31/2017 801%
QTUM (QTUM) 3/12/2017 734%
OmiseGO (OMG) 7/15/2017 617%
ChainLink (LINK) 9/19/2017 562%
Holo (HOT) 3/29/2018 528%
Etheroll (DICE) 2/13/2017 519%
0x (ZRX) 8/15/2017 459%
EOS (EOS) 6/26/2017 428%

 

The main things these projects all have in common is they possess at least one of these qualities:

  • They are having a visibly transformative effect on their particular industry.
  • They have clear-cut usages in the real world, along with a steady base of customers, and are capable of penetrating the mainstream.
  • They are born out of an original, potentially revolutionary idea, and have a solid plan / roadmap of how to enact their vision.
  • Their team is in it for the long haul, consisting of at least a few highly competent individuals who possess great leadership abilities.

A few qualities that are potentially beneficial for any ICO but do not by any means guarantee success include:

  • Great marketing, social media engineering and a snazzy website.
  • Industry celebrities on the team, acting as advisors, or giving endorsements to the project.
  • Partnerships within the industry or with the media.

Qualities of an ICO that almost guarantee it will be a failure include:

  • Being centered around potential profits for their investors, advertising big, surefire returns.
  • A lack of transparency when it comes to team members, long-term goals or fund management.
  • A lack of a white paper, or having a plagiarized white paper, or no white paper at all.

So, where are the projects that might have traditionally been called ICOs in the past today? They are actually still out there, just going by different names in order to avoid the stigma presently associated with the ICO acronym. They are probably even of greater suspect than ICOs because they are trying to hide what they actually are: crowd-funded coin or token sales, otherwise known as ICOs. A couple names they go by as an alternative include:

  • IEO: Initial Exchange Offering. This is simply an ICOs that is hosted on an exchange. The coin/token is just initially released for sale on an exchange partnered with the project instead of through the project’s website. This practice has actually been going on for quite some time (Binance was one of the first exchanges to do this for ICOs), and the only thing new about it is the name.
  • STO: Security Token Offering. This is a fancy way of implying that an ICO is being considered a “security” (such as a stock) by some sort of regulatory agency, when this is not necessarily the case at all. The word “security” sounds more reassuring that an investor is not going to get swindled, and that it may have the perks of owning a stock (such as dividends or buyouts), but in reality there is nothing legally compelling them to act any differently than if they were running an ICO.

So, where does that leave any hearty investors who still have the gumption to search out the next big crypto winner, capable of mirroring the astronomical rises witnessed by hundreds of projects in 2017? Unfortunately, there are extremely slim pickings out there right now in terms of quality projects. Taking a look through the Bitcointalk forum’s Altcoin Announcements section, which has historically been one of the first and foremost collections of new and exciting blockchain projects, there isn’t currently a whole lot to be excited about – more or less the same ‘ol projects trotted out again in a slightly different disguise.

It’s of this author’s opinion that instead of looking for a new, upcoming project which is still in the money-raising phase, it would be substantially wiser to invest in a pre-existing project that has already at least somewhat established itself. Find a project that is not still in search of funding and has already taken the first steps toward accomplishing its goal. You may be able to find some pretty steep discounts out there, as many projects have had their coin/token price crushed by the general market trend perhaps unfairly, and are still continuing the development of their product at full speed, undeterred by unfavorable price movements.

In our next article, we will give you some tips on how to suss out the good projects from the bad, and how to spot the difference between a good idea and the appearance of a good idea.