Initial coin offers (ICOs) have become notorious in popular discourse for scandals and frauds. They have, nevertheless, produced outsized profits for those investors prepared to accept the considerable risks connected with them.
A new Boston College research examined ICO data across several time periods and discovered that the risk of ICOs is proportional to their benefits. According to the survey, an average investor receives 179% returns from the ICO price to the opening market price on the first day. They gain 82% even if there is a 60-day lag after token listing and 48% 30 days after trading starts. “ICO returns are positive and substantial not just when the cryptocurrency asset class performs well, but also when it performs badly,” the researchers stated.
Hugo Benedetti and Leonard Kostovetsky built a dataset of 4,003 completed and proposed ICOs that generated $12 billion in money to reach their findings. The writers also put the many scams that have plagued ICOs into perspective, writing that “scams, although numerous in quantity, are not as significant in terms of stolen wealth since investors are savvy enough to recognize (and underfund) them.” However, they have not produced any examples of such occurrences. (For more information, see How Companies Use Initial Coin Offerings.)
ICO values may seem excessive and pricey to some, but the authors claim that ICOs are really underpriced owing to the price increase when they are published on cryptocurrency exchanges.
There are several reasons for underpricing of ICOs.
The writers, for example, claim that blockchain and cryptocurrency businesses are unskilled when it comes to pricing their tokens. Owners, according to some, decide the original price. This is most likely owing to the fact that ICOs offer a product that has yet to be developed. The lack of underwriting companies, which establish an initial price for a company’s shares based on sales and earnings, complicates things even further. According to the survey, the survival percentage of businesses 120 days after the completion of an ICO is just 44.2%.
Investing in cryptocurrencies and other Initial Coin Offerings (“ICOs”) is very dangerous and speculative, and this article is not a suggestion by Investopedia or the author to do so. Because every person’s circumstance is different, a knowledgeable specialist should always be contacted before making any financial choices. Investopedia makes no guarantees or warranties about the accuracy or timeliness of the information provided on this site. The author holds a minor quantity of bitcoin and litecoin as of the date this article was published.
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