A study has found that the average return on investment for Initial Coin Offerings is more than 180% of the invested amount, available in less than a month. This means that the ICO craze of the last year is based not only on promises but in real gains.
Initial Coin Offerings are a popular form of crowdsourcing in which anyone can participate by giving funds to a company, that will then return an amount of a cryptocurrency token normally associated with a specific platform. These companies are in the eye of the regulators because there have been numerous complaints about some of them being scammy or at least misleading.
The study was carried out by Leonard Kostovetsky, an Assistant Professor of Finance of the Carroll School of Management; and by Hugo Benedetti, a Ph.D. Candidate, both of the Boston College. They collected data from more than 4000 Initial Coin Offerings and examined their development and performance since their pre-sale till their listing dates, and even beyond that.
The study concluded that the earlier investors get into the ICO, the better results the investment will yield. If the investment is made in the presale period of the ICO, the average revenue would be of 179%, with investors only having to hold coins for 16 days. Even taking in account coin offerings that were fraudulent and investors lost all their money, the average investor would still walk out with revenue of more than 80%.
The paper states that these percentage of revenues are related to the novel kind of investment that ICOs represent and belittles the importance of the possible scams. The paper states:
“…ICOS INVESTORS ARE COMPENSATED HANDSOMELY FOR INVESTING IN NEW UNPROVEN PLATFORMS THROUGH UNREGULATED OFFERINGS… SCAMS, WHILE PLENTIFUL IN NUMBER, ARE NOT AS IMPORTANT IN TERMS OF STOLEN CAPITAL BECAUSE INVESTORS ARE SHREWD ENOUGH TO SPOT (AND UNDERFUND) THEM.”
The investigators concluded that, while there is a need for regulation for this kind of investment instruments, there has to be a balance to protect investors while not hampering the market with strong constraints. The whole study can be read here.