Soaring ICO Failure Rate Sees Investors Flock to ‘Bigger Players’

ICO failure rates are increasing. However, there seems to be a trend of fewer projects receiving bigger sums. Due to regulatory pressure, ICO bans, and a bear market, investors seem to be taking a new strategy to funding blockchain projects.

ICO Failure Rates Surge

There is new evidence to suggest that one in two Initial Coin Offerings (ICOs) failed in Q2 of 2018, while those that succeeded suffered huge loses. This is according to the agency, ICORating, whose data suggests 55% of ICO’s failed to complete in Q2 of 2018. The difference in returns between Q1 and Q2 is significant. In Q1, ICOs enjoyed an average return of almost 50%. In Q2, returns equaled -55%. According to Michael Spencer, Editor of Future Sin, this as a sign of blockchain projects deteriorating in quality. But, he believes there is more than meets the eye. Other factors are at play. In particular, regulatory pressure from the SEC, ICO bans, and the Bitcoin price slump. “While ICOs exploded from almost nothing to be a multibillion-dollar market in 2017, however in 2018 they appear even more speculative, risky and dangerous to the layperson investor,” Spencer writes. 

Less Projects, More Money

But while the failure rate is increasing, investment is not. In fact, the amount of money pouring into ICO tokens is rising. In fact, Business Insider notes that out of a total 827 ICO projects, investment totaled $8.3 billion in Q2 and $3.3 billion in Q1. At the same time, fewer projects are attracting bigger sums, suggesting that bigger players are entering the market. Spencer also interprets this is a pivot towards private blockchain projects. He explains: It spells a movement towards bigger players that we are seeing in the larger space; where private instead of public blockchains might be more the order of the day as bigger players enter the space: e.g. Bakkt. Bakkt’s focus on digital assets was wildly acclaimed by crypto insiders and the media as being potentially disruptive.

ICO Investment Dependent on Project Location

As the blockchain market continues its rapid development, investors are adapting as the country of registration is becoming an important factor. In other words, the country in which the company’s legal entity is registered at the time of the ICO. North American startups attracted the bulk of funding, according to the ICO Rating report, with 64.6% of the total raised in the quarter. But smaller countries are increasingly hosting projects that are attracting larger sums. The total amount of ICO funding per country presents an interesting picture:

• Malta: 8 projects raised $113M

• Cyprus: 8 projects raised $124.7M

• Isle of Man: 2 projects raised $37M

This is compared to $393.7M and $301M raised in the US and UK, respectively. Put simply, projects within countries that have less red tape and friendlier regulatory frameworks tend to raise more capital per ICO. In any case, as blockchain technology develops and regulations play catch up, ICOs appear to also be adapting to this borderless new industry.

Is the ICO space experiencing a cool-down? Or is it only getting started? 

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