The juggernaut shows no signs of stopping: Despite talk of an SEC crackdown and high failure rates, initial coin offerings (ICO) are still raking in the moolah. According to the latest statistics from research firm Token Data, ICOs have raised $10 billion since the start of this year. To put that figure into context, ICOs raised $6.1 billion all of last year, some sources claim, while others put the total at approximately $5.5 billion. This means that they have almost doubled their last year’s fundraising totals in the first six months of 2018. For investors, this means that ICOs are not going away anytime soon and are thriving despite increased scrutiny from regulatory agencies.
Blockbuster ICOs and Failure Rates
To be sure, the figure for this year also includes blockbuster ICOs that garnered public and investor attention. For example, Telegram raised $1.7 billion from private investors and, eventually, canceled its public ICO. The EOS ICO, which raised $4.2 billion, may have started last year but it gathered steam (and a majority of its funds) only this year. According to Token Data, the project raised almost a billion dollars in May alone. That’s almost half of the total funds raised by startups performing ICOs during the month of May.
“The May 2018 numbers come as a surprise to us because we were seeing a downward trend, high ICO project failure rate (50-60%) and ‘bear market’ conditions,” the firm noted in its newsletter.
Earlier this year, Bitcoin.com found that nearly half of ICOs announced last year failed. When ICOs that had stopped communicating with investors regarding product updates or progress were included in the mix, the failure rate jumped to 59%. But investors seem unfazed and are especially attracted to the high returns involved in the fundraising mechanism. This is especially true of private investors. Pre-sales or sales of tokens at a discount to private investors have gained in popularity this year as government officials have ratcheted up talk about bringing ICOs and cryptocurrencies under their regulatory umbrella.
Analysis by Token Data in February revealed that entrepreneurs were increasingly resorting to larger fundraises through private placement as opposed to spending heavily on legal and marketing for a public offering. The firm estimated that an average of 58% of total funds raised was through private sales. Investors in Asia are also stepping up to the plate. China, Hong Kong, South Korea and Singapore were responsible for $350 million of the May total.
Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is highly risky and speculative, and this article is not a recommendation by Investopedia or the writer to invest in cryptocurrencies or other ICOs. Since each individual’s situation is unique, a qualified professional should always be consulted before making any financial decisions. Investopedia makes no representations or warranties as to the accuracy or timeliness of the information contained herein. As of the date, this article was written, the author owns bitcoin and litecoin.