It is very difficult to find some objective criteria of investment risk regarding ICOs. People dedicate their whole life to be as precise as possible in economic predictions yet, even they are wrong sometimes. We live in a world of quantum mechanics and genetic engineering, but still, we cannot build the effective stock market simulator. Huge market crashes are hard to predict, but what we can do is to analyze short-term investment returns. Boston College Carroll School of Management did just that on May 20th regarding investment returns of ICOs.
In the report titled “Digital Tulips? Return to Investors in Initial Coin Offerings,” it is stated that the average ICO investor sees returns of staggering 82 percent! This is quite an important result as it may suggest that general public criticism of ICOs might be unjustified.
The report included a dataset on 4,003 executed and planned ICOs, which raised a total of $12 billion in the capital, nearly all since January 2017. This particular sample of ICOs is extraordinarily relevant since it takes into account the time of the biggest ICO boom.
They found evidence of, "significant ICO under-pricing, with average returns of 179% from the ICO price to the first day's opening market price, over a holding period that averages just 16 days." These interesting results are profoundly changing the way we look at ICOs. It is continued with the unusual analysis that concluded that representative ICO might earn up to 82% even after imputing returns of 100% to ICOs that do not list their tokens within 60 days.
The way in which token price fluctuate is also quite attractive since it is shown that "tokens continue to appreciate in price, generating average buy-and-hold abnormal returns of 48% in the first 30 trading days." The report continued to add that those investors who held their tokens for longer periods of 180 days are seeing the highest returns, between 150 percent and 430 percent.
The report concluded that these results could be an indication of bubbles, although they are also consistent with the high compensation for risk-taking. It is stated in the report that in terms of stolen capital, scams are not as relevant as we may think. Investors usually spot scams, underfund, and avoid them.
It is clear that the biggest ICO problem is negative media coverage. Frequent negative news regarding ICOs results in public distrust towards them. This is not something that cannot be fixed. But, better days are coming! Recently, South Korea announced plans to lift its ban on domestic ICOs, which will surely have a positive impact on the public perception of the ICOs.
Also important, the report showed that ICO scams are not as damaging as one may think. It is presupposed that if the investor has some basic knowledge of the industry, it will be fairly easy to spot them. Nonetheless, scams are of course damaging the reputation of ICOs and cryptocurrencies in itself. Good news is that this can be easily fixed with some new regulations that will bring prosperity to the ICO world.
What do you think about this report? Will it change public perception of the ICOs? Feel free to post your opinion in the comments!