ICOs (Initial Coin Offerings) are very alluring. Investing in a promising blockchain project at its inception certainly makes me salivate. “What if this is the next Ether?” is the question ICO investors ask themselves with exciting protocols. Beyond the fun of playing VC and evaluating an early stage project (“Vitalik’s an advisor!” “This whitepaper is amazing.”), the returns on ICOs have been truly phenomenal. But are they still?

A few weeks ago, Business Insider published an article showing that average ICO returns are 1320%. That’s based on a report from Mangrove Capital that looked at 204 ICOs, though no dates or names are mentioned in the report. The Business Insider article just came out, so it sounds like ICOs are still on fire.

If you are actively investing in ICOs, that probably doesn’t ring true. I’ve been investing in ICOs full time for the last three months, and it feels like the returns are dwindling. While I’ve had winners, I’ve also bought into some ICOs where the coins hit exchanges below the ICO price (looking at you Request Network). And it feels like things are getting especially cool as of late. So, let’s check out the data to see what’s going on.

Historical ICO Flip Returns

It’s actually pretty hard to find good data on ICO returns. Tokendata is solid and ICO Stats is pretty good too. But for serious analysis, you want data on more projects and more data points for each – including first day exchange price. My trading partner Andrew and I have a deep database of 150 projects that have ICO’d. Our selected projects are heavily weighted in the past five months, so this will serve as a good sample for our analysis. In general, the projects represented are the top tier ICOs, those with the most hype and those which people are most likely to invest in.

We’ll look at the returns on flipping ICOs: selling the project’s token when it hits exchanges. This simplifies things. Demand for a token can increase or decrease once it’s live on exchanges, but all kinds of factors come into play. Average “flip returns” are the most direct measure of the ICO market as a whole. The last five months paint an interesting picture:

June ICO Returns

These tokens hit exchanges this past June. Organizing by the “live on exchanges date” better reflects the overall ICO climate for the project than the date the token sale closed. The average ICO in this data set went live 18 days after its token sale closed.

June was a great month for flipping, although the sample is small. The average return was 194% (2.94x the ICO price). Only one token (SONM) opened under its ICO price. The average raise for these projects was $35 million dollars, which reflects the great climate for ICOs to raise money.

July ICO Returns

ICO flip returns were still hot in July, with an average of 120% returned over the 20 projects in this sample. Both Populous and Metal were monsters. There were a fair amount of “losers” here, but most were not dramatically under their ICO price. The 8 losers averaged 25% less than their ICO price at the close of their first day on exchanges.

August ICO Returns

In August, ICO returns started to slow down compared to the previous two months. The average ICO flip return is “only” 75%.

September ICO Returns

September had 89% ICO flip returns, higher than August. October is when things turn:

October ICO Returns

This data only covers the first 21 days of October, but the message is clear. Only 29% percent average returns! This is a stark contrast from June when the average returns were more than 6x greater:

ICO Returns by Month

The steep downward trend in average flip returns and uptick in losers make this a tricky time to invest in ICOs. Blockchain as a whole is getting a ton of exposure, and project teams have been taking advantage of the positive ICO climate by raising lots of money. It appears that things are settling down now, and there is less demand for ICOs once they hit exchanges. ICO investors should be quite selective in the projects that they choose to invest in. I recently bought Amber (the token for Ambrosus) at half of the ICO price on etherdelta. If you are interested in a project, it may be worth your while to wait until it hits exchanges to buy the token.

When tokens are keeper on exchanges than in the ICO, that causes issues for teams raising money. ICOs are a very powerful funding mechanism, and teams with upcoming ICOs will calibrate to this environment to make ICOs worth investing in again. That will likely involve smaller caps and better bonuses. The question is how long the calibration process will take.

I’ll report back every few weeks with updates on the ICO climate and updated data. Please let me know your thoughts and questions in the comments!

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