ICOs are dead – long live the ICOWednesday, November 7, 2018
Token and ICO fundraising continued a steep decline in July 2018. 40 ICOs and (private) token sales raised a total of $417M – down from $585 Million in June and $2 Billion in May. This is the lowest monthly amount we’ve measured since May 2017.
A closer look at the data reveals the following:
- No “mega” ICOs: While the summer of 2017 was characterized by the first “mega” ICOs (Tezos, Status, Bancor), the summer of 2018 is characterized by their absence. There have not been any sales that have verifiably raised more than $100 million in June or July 2018.
- U.S. teams are absent in public sales: Only a handful of cryptocurrency teams in the U.S. are still raising funds through public ICOs. Most – if not all – activity has shifted to private sales and traditional equity rounds. We’re not seeing this shift in Europe…yet..
- Tokens underperform: Token prices have cratered in the past months – some dropping more than 80% (more on that below). As shown in the table below, the median return of all ICO issued tokens is now -20% (0.8x). Moreover, ICO-issued tokens not only underperform relative to their ICO sale price but also to Bitcoin and Ether.
The “worst cohort” of tokens are those issued in the first half of 2018 – especially those issued by ICOs that took place at the peak of the cryptocurrency boom. For the 100 tokens issued in Q1 2018 the median return is -60% (0.40x), compared to “just” -30% (or 0.7x) for a portfolio consisting of Bitcoin.
Median Returns by ICO Date
|ICO Date||Nr of ICOs||Token||ETH||BTC|
|2017 Q1||6||8.9 x||33.6 x||6.9 x|
|2017 Q2||42||1.8 x||1.8 x||3.0 x|
|2017 Q3||61||1.0 x||1.8 x||2.0 x|
|2017 Q4||84||1.1 x||1.3 x||0.9 x|
|2018 Q1||100||0.4 x||0.5 x||0.7 x|
|2018 Q2||34||0.6 x||0.8 x||0.9 x|
|_||327||0.8 x||1.1 x||1.0 x|
** Returns are calculated assuming that someone invested 1 USD in every ICO and put 1 USD in ETH and BTC at the same time in separate portfolios. There is no rebalancing or weighting.
It’s safe to say that the correction in cryptocurrency prices and increased regulatory attention have finally had an effect on the ICO market. Although we’re hesitant to pronounce “the death of the ICO” we believe that the corrections in both new capital and trading activity are well-needed and long overdue.
The Decay of Token Prices
In addition to calculating the returns by ICO date, we’ve done a full historical analysis of more than 300 ICOs that have taken place since January 2017. As shown in the graph above, the individual tokens (in red, left axis) traded as high as 200-250 times their original ICO price during December 2017 and January 2018.
But – as cryptocurrency markets have corrected – the combined value of these 300 tokens has dropped by more than 80% since the peak in Q1 2018. A hypothetical cryptocurrency portfolio consisting of all 300 tokens would now be worth ~$600 versus $3500 at the peak (in purple and right axis). While this $600 is still double the original investment of $300 (black line), we highly doubt that we’ll see the levels of Q1 2018 soon or ever again…
*If you have questions about this analysis or any data-related queries, reach out to our research team ([email protected])!
**Methodology is as follows
- ICO Selection: Select all ICOs which raised at least $1 million and calculate the token price during the ICO
- Token Selection: Select only tokens which are publicly traded and have daily trading data available
- Individual Token Values: (red lines) Rebase all tokens to $1 investments at the ICO end-date and calculate return multiples
- Cumulative Token Value (purple line): Calculate the sum of all Individual Token Values Investment (black line): Calculate the sum of all $1 investments into ICOs over time.