Much has been made about the prevalence of scams within the initial coin offering (ICO) industry. However, a new report published by researchers at the Boston College Carroll School of Management suggests that the average ICO investor is still raking in a significant profit.
The 54-page report, titled “Digital Tulips? Returns to Investors in Initial Coin Offerings,” examined 4,003 ICOs which raised a combined $12 billion and tracked the value of their tokens across different timeframes.
The study found that the average ICO token rose 179 percent from its token sale price to its opening price after achieving listing on a cryptocurrency exchange, a holding period that lasted an average of just 16 days. Even after assuming that tokens that failed to achieve listing within 60 days represent total losses for buyers, the average investor managed to net an 82 percent profit against USD.
Source: Boston College
Even investors who waited to purchase ICO tokens until they had been listed on an exchange managed to yield impressive returns, as prices rose an average of 67 percent during their first 30 days of trading. This return increased significantly for investors who held onto their tokens over longer time periods, netting Hodlers 140 percent over 90 days, 430 percent over 180 days, and 1,880 percent over 360 days. However, researchers noted that there are fewer data points for these longer durations as most ICO tokens have not been trading for a full calendar year.
The researchers said:
“Our paper shows that ICOs investors are compensated handsomely for investing in new unproven platforms through unregulated offerings. It suggests that scams, while plentiful in number, are not as important in terms of stolen capital because investors are shrewd enough to spot (and underfund) them.”
“While our results could be an indication of bubbles, they are also consistent with high compensation for risk for investing in unproven pre-revenue platforms through unregulated offerings,” they added.
Hugo Benedetti, one of the report’s authors, told CCN that he was “very surprised” by the findings, particularly given the media attention on ICO scams. However, when asked what this meant for the industry moving forward, he was hesitant to draw any long-term conclusions.
“Well, that’s a tricky question, because nothing guarantees that the market will continue to allocate capital as proficiently as it has so far. Retrospectively, we see that even though there have been many underperformers (ICOs that list or trade below their issuance price), on average the returns to the industry have been largely positive,” he said.