A note before we get started: The data we are using in this piece was collected from Token Data, complemented by our own research. While Token Data is a handy tool, it is very likely there is information missing — collecting data for every single ICO is no easy task. You can verify the data we used here.
With reports that the ICO hype train of 2017 is seeing a slowdown and the continuing downtrend of the crypto market, we decided it would be interesting to examine just how much investors would have made (or lost) if they had invested in projects at their ICO price and held on to their investments.
We started off with a list of ~1,750 ICOs from 2014–2018. Of these ICOs, 303 (~17%) were completed¹, and their native cryptoassets are now actively traded on the market. Which brings us to the interesting part. Based on the returns of these ICOs, on average, $1 invested and held would become $5.79 as of September 2018 — a return of 479%. In theory, if you had invested $1 in each of the 303 ICOs, you would now have $1,754. However, as you’ve probably guessed, there are some huge outliers in this data set. Returns from projects like Ethereum (+59,553%) and Stratis (+19,371%) greatly skew the averages as shown in the following chart:
This distribution is not unlike the power law distribution found in the venture-capital industry. The most successful firms generate a majority of their returns from investments in startup outliers (think Google, WhatsApp, et al.). The returns of the most successful venture capital firms are by no means an accurate representation of the success for all venture capital firms.
Bringing this back to ICOs, the average returns of an offering are not going to accurately represent ICO returns more generally. If we convert our earlier chart using logarithmic scales, we see a better representation of the distribution of returns.
Here we see that the central tendency for ICO returns is much lower. To get an accurate representation of how low, we took a look at the median return. Using the median instead of a simple average, a dollar invested in ICOs and held would have become $0.46 — a return of -54%.
One of the reasons for the ICO frenzy in 2017, was in part due to confirmation bias. Investors saw the success for ICOs like Ethereum, NEO, and Augur and tricked themselves into believing that success of these would apply to all ICOs. This analysis demonstrates that is just not true. In the investment world, there will always be outliers that will generate the majority of returns. If investors attempt to enter the market because they hear the hype train, they might soon find out that the sound they are hearing is the train leaving, rather than arriving.
¹ This does not mean only 17% of ICOs were completed. It means 17% were completed and are traded on the markets right now. An example of an ICO that is completed but not publicly traded (other than via futures) would be Filecoin.