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Cryptocoin graveyard fills up as ICOs meet their end

Eighty percent of ICOs are frauds and 10 percent fail shortly after launch, as they lack substance, a business author said

By Olga Kharif  /  Bloomberg

That mournful sound you hear? It is the funeral procession of yet another cryptocurrency.

As the digital money frenzy of the past few years cools, the cryptocoin graveyard is filling up. Dead Coins lists about 800 tokens that are bereft of life, while Coinopsy estimates that more than 1,000 have bought the farm.

The carnage is mostly the consequence of failed projects from the thousands of start-ups that used initial coin offerings (ICOs) to raise billions in funding, and a global regulatory crackdown on questionable practices and scams.

Names like CryptoMeth, Droplex and Roulettecoin might have been a clue to the coins’ dim prospects.

“There has obviously been a lot of fraud and hype in the ICO market,” Aaron Brown, a business author and investor who writes for Bloomberg Prophets, said in an e-mail. “I accept figures I have seen that 80 percent of ICOs were frauds, and 10 percent lacked substance and failed shortly after raising money. Most of the remaining 10 percent will probably fail as well.”

Fewer than 4 percent of ICOs raising from US$50 million to US$100 million were successful or promising, according to a March analysis from ICO advisory firm Satis Group.

Most ICOs were raising money without having an experienced development team or an actual product, just white papers studded with promises.

Blockchain start-ups are faring worse than their counterparts in other industries.

Of 103 companies that received initial seed or angel funding in 2013 and 2014, only 28 percent managed to raise additional funding, according to CB Insights’s October last year report.

That compares with 46 percent of the 1,098 tech companies that raised a second round in the US between 2008 and 2010.

Among tech companies, 14 percent went on to a fourth round, while only 2 percent of the blockchain companies did, the researcher found.

“I don’t think we found the killer app yet,” said Arieh Levi, an analyst at CB Insights. “It just seems like there’s been a lot of projects tried, but there aren’t really many users of blockchain protocols beyond speculators and traders.”

The failed projects have cost investors billions.

Barring outliers like BitConnect, which saw its market cap shrink to about US$4 million from nearly US$3 billion in December, most of the ICOs that birthed these coins were relatively small, but investors might have still lost as much as US$500 million, said Lex Sokolin, global director of financial technology strategy at Autonomous Research LLP.

The book of the dead is expanding rapidly now that prices have collapsed across the crypto market. The industry’s bellwether, bitcoin, is down 57 percent this year.

And the number of articles declaring its demise is up to 319 since 2010, according to 99Bitcoins.

About 80 percent of the 1,586 coins that surveyor looked at declined in the week that ended on monday, by an average of 19 percent.

“We will see a lot more abandoned ICO that never make it to an exchange,” Richler Vanierwitz of Coinopsy, said in an e-mail. “ICO investment will become very unprofitable.”

ICOs have raised US$11.75 billion this year alone, according to CoinSchedule.

However, there is always the afterlife.

A new breed of crypto undertaker sees this as an opportunity.

Start-up CoinJanitor has partnered with Dead Coins, saying it wants to help investors and developers recycle failed coins with market caps of under US$50,000.

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