Last week, we broke down the basics of initial coin offerings and shed some light on why ICOs have been thriving despite coins failing at an alarming rate. The logic is simple. Despite the scams and deadcoins piling up within the entire market, statistically speaking, you would make at least 13% of your investment back if you were to simultaneously invest in every ICO on the market.
From that perspective, it's really logical for investors to get involved with initial coin offerings given how fast the market is growing. However, a new study from the Satis Group claims that 15% of all ICOs went on to trade on an exchange. 7% have failed or died, and an astonishing 78% are confirmed scams.
How Can 78% of ICOs Possibly Be Scams?
The study published through the Satis Group recognizes "Identified Scams" and identifies them as projects that "did not have/had no intention of fulfilling project development duties with the funds, and/or was deemed by the community (message boards, website or other online information) to be a scam."
Recently, Coindesk reported that a team from Boston College found over half of all token projects fell into inactivity within four months of accepting sales and funding. By last year's statistics, it's incredible that the ICO market remains so profitable for investors. In 2017, roughly $12 billion was accounted in total funding for coins and tokens. About 11% of that or $1.34 billion of funding for ICOs went to profiting scams.
More specifically, Pincoin received $660 million, Arisebank got $600 million, and Savedroid stole 50 million dollars from crypto investors. Obviously, 11 percent of the total cryptocurrency market isn't going to kill the entire industry. However, it remains a major concern after considering how much more investors and money has entered the market thus far in 2018 and that could have a huge impact on cryptocurrency.
Major Changes Coming to ICO Market?
If 78% of the market is made of scams, then crypto investors are only going to become more skeptical with ICOs and the market will not be this profitable for long. A logical explanation for the rise of scams in the ICO market might be legitimate projects seeking better environments to find funding rather than enter the sketchy world of ICOs.
Last year, ICO fundraising in the Cayman Islands actually rose by 37%. That's an indication that legitimate businesses are avoiding ICOs altogether. Regardless, the new report from the Satis Group, investors shouldn't jump to conclusions because the firm is expected to publish three more reports all aimed at delivering "a comprehensive understanding of the pillars that comprise the crypto-asset universe."