Four out of five initial coin offerings (ICOs) that have taken place in the last year have been classified as scams, according to a recent study by Satis Group, an ICO advisory firm.
ICOs have been the rage of the cryptocurrency world because they allow companies to raise money for various ventures by issuing cryptocurrency tokens that users could buy and later trade on cryptocurrency exchanges.
The concept is similar to an IPO, but instead of shares, companies issue tokens, and some companies promised to buy tokens back from users after a product became successful and the token's value increases.
The study's results don't bode well for people who've invested in one or more and are expecting profits sometime in the near future.
The Satis study organized ICOs in six categories, based on their current status. Only ICOs with a market cap of $50 million or higher have been included in the results, and the percentage of scammy ICOs would have probably bee higher if researchers looked at the smaller ICOs.
According to researchers, 81% of ICO’s were Scams, 6% were classified as Failed, 5% had Gone Dead, and 8% went on to trade on a exchange.
Of the ICOs that had their tokens included on an exchange platform, 2.8% were in a Dwindling state, 1.6% were considered Promising, and only 3.8% were classified as Successful.
The six ICO categories are detailed below:
The study's results show why the US Securities and Exchange Commission has started cracking down on companies offering ICOs since last fall, investigations that have started to stack up in recent weeks.
But the Satis Group study looked at ICOs as individual units of measurement. Another study carried out by "Big Four" accounting firm Ernst & Young in December 2017 reveals that 10% of all ICO funds were lost to hackers and scams last year.
This number reveals that despite the high number of scammy ICOs detected by Satis, users were usually smart enough to stay away from suspicious coin offerings.
But the scammy nature of ICOs is also specific to the whole cryptocurrency market as a whole. For example, a Bitcoin.com survey revealed that nearly half of 2017's new cryptocurrencies had already failed, and many were expected to die out in 2018.