The initial coin offering (ICO) market has been known as the “Wild West” of the cryptocurrency sector. However, the condition of the companies that are raising millions of dollars via this new method of crowdsourcing is not particularly inspiring. New research by ICORating reveals that companies raised over $8.3 billion in the second quarter of this year, however, it also suggests that almost half of the companies are failing to achieve their goals.
The Good and the Not So Bright
Compared to 2017, the ICO market is flourishing, even though regulatory oversight is stifling the prospects of new coin launches. In Q1 2018, ICOs raised only $3.3 billion, less than half of what was raised in Q2. However, if we take the $4 billion EOS project out of the picture, then the growth in the second quarter doesn’t look as sizeable. Another reason why taking EOS out of the scene is important is because the company ran a yearlong fundraising campaign.
Telegram turned out to be the second biggest ICO project, but most of its funding was completed via a private sale. The research states:
“One of the trends in the 2nd quarter was an increase in the share of tokens allocated to private and presale stages, and, accordingly, a decrease in allocations for crowd sales.”
The largest number of ICOs are dedicated to financial services and blockchain infrastructure. Projects related to virtual reality and gaming are catching up quickly with the number of such start-ups doubling quarter on quarter.
Here Comes the Downside
According to the paper, the difference between the large projects and the smaller ones is widening by the day. A handful of larger projects often end up successful, raising millions (sometimes billions) of dollars. Smaller companies, on the other hand, struggle to get capital. In fact, during the second quarter, a large number of small projects raised less than $100,000. In fact, the number of companies raising less than $0.5 million is the highest.
Fifty-five percent of all ICO projects have failed and the reason behind this is untested ideas. Small companies raise funds at the idea stage, where they haven’t built anything significant. There is no real product and no market value for their creation. At least 58 percent of projects at the idea stage could not even raise half a million dollars as they could not show anything of substance to users or investors.
Another worrisome side of the ICO market is that barely 7 percent of coins are able to reach an actual exchange, and the median return on all projects is −55.38 percent. In fact, listing time for ICO coins on exchanges has increased by six days. The difficulties in the sector seem crippling to the entire cryptocurrency industry.