EY: ICO portfolio is down by 66% in the first half of 2018

In the first half of 2018, 86% of the leading initial coin offerings (ICOs) that listed on a cryptocurrency exchange in 2017 are below their initial listing price and a portfolio of these ICOs is down by 66% since the peak of the market at the beginning of this year, according to a study from EY, Initial Coin Offerings: The Class of 2017 – one year later, that examined the ICOs’ progress and investment returns.

86% of tracked ICOs are below listing price; 30% lost substantially all their value
Top 10 ICOs listed in 2017 account for essentially all of the gains since issuance

The study finds 30% have lost substantially all their value. There were gains among The Class of 2017 since their ICO, with most gains (99%) concentrated in the top 10 ICO tokens, the majority of which are in the blockchain infrastructure category.

The latest study follows an initial analysis a few months ago, when EY analyzed top ICOs representing 87% of the ICO funding last year. It found that a lack of fundamental valuation and due diligence by potential investors was leading to extreme volatility in ICO performance, which is still an ongoing issue. This study found that ICOs claimed to have raised more than US$15b in 2018, compared with US$4.1b[1] in 2017.

However, EY found that only 29% (25) of the 2017 ICO projects that EY assessed have progressed to prototypes or working products – an increase of just 13% from December 2017. The remaining 71% have no offering in the market.

Utility tokens diminish in value

The study also examined the 25 companies with working products. Of those 25, seven were accepting payment in fiat currency as well as ICO tokens for their product offerings. As a result, customers can make purchases directly without buying the tokens issued in the ICO process, therefore bypassing the community of token holders and diminishing the value of the ICO tokens. In at least one case, an ICO company has abandoned ICO investors by no longer accepting their tokens (de-tokenizing).

Ethereum platform remains dominant

Ethereum is the dominant platform and shows the highest activity among developers and on social media. While new platforms arise on a regular basis, there is no sign that the new ICO infrastructure projects have had any success in reducing the dominance of Ethereum as the industry’s main platform.

Nicolas Pavlou, Associate Partner, Financial Services Industry – Audit, Forensics & Integrity,of EY Cyprus, commenting on the findings of the study said: “Despite the publicity that ICOs have provoked over the past few years, there is still a significant lack of understanding around the risks and rewards of these investments. Moreover, there is a significant gap in expectations between ICO project developers and those who invest in ICOs with regard to the anticipated timelines of ROI. Investors need to be aware that the ICO market is still operating without a strict regulatory framework and, therefore, along with enticing rewards they could involve substantial risks.”

[1] The figures on ICO funding volumes (total and per project) are derived from open sources as of September 2018. The EY analysis is of 141 ICOs from 2017. We did not audit or confirm the data and it is subject to change.