About 56 percent of crypto startups that raise money through token sales die within four months of their initial coin offerings.
That’s the finding of a Boston College study that analyzed the intensity of tweets from the startups’ Twitter accounts to infer signs of life. The researchers determined that only 44.2 percent of startups survive after 120 days from the end of their ICOs. The researchers, Hugo Benedetti and Leonard Kostovetsky, examined 2,390 ICOs that were completed before May.
Acquiring coins in an ICO and selling them on the first day is the safest investment strategy, Kostovetsky said in a phone interview. But many individual investors can’t participate in ICOs, so this option isn’t open to them. Still, all investors should probably sell their coins within the first six months, the study found.
Returns have been declining over time, as startups have become savvier about pricing coin offerings and more have people jumped into ICO investing. Returns of people who sold tokens on the first day they were listed on an exchange have been declining by four percentage points a month, Kostovetsky said.
"They are much lower now, so I wouldn’t expect them to continue to decline at this rate," he said.
A slew of recent studies have shown just how risky ICO investing is. More than 1,000 tokens have already bitten the dust, according to the website Coinopsy
"People often look at returns and say this is a great deal, but we teach in finance that return is a compensation for risk," Kostovetsky said. "These are stakes in platforms that have not yet been built, that have no participants yet. There’s a lot of risk. The majority of ICOs do fail."
Kostovetsky is an assistant professor at Boston College’s Carroll School of Management, and Benedetti is a finance PhD student at the school.