E&Y ICO Findings

In their recent ICO report ‘The Class of 2017 – one year later’ Ernst and Young painted a grim picture of the performance of the ICO sector. Furthermore, it found that the ICO sector was fraught with high fraud risk and theft. To make matters worse, startups embarking on ICOs were found to be providing would-be investors with inaccurate information about their project to boost investments. In such cases, the failure of investors to conduct thorough ICO research is tantamount to coin flipping.

A Perspective on E&Y’s Findings

To put these findings into perspective, The ICO sector has long been considered as an ultra-high-risk asset class. However, the results are not that different to the Venture Capital and Angel Investing sectors. According to an Inc. report Harvard professor Shikhar Ghosh claims that 75% of U.S. VC-funded startups fail. Moreover, it has become an accepted rule-of-thumb that nine out of ten startups to fail within the first five years. This suggests that the high-risk ICO market may not be that much riskier than Angel Investing or Venture Capital.

We can conclude from this that the performance of ICOs is more newsworthy than that of other investment classes. Moreover, like most bad news stories,  good news tends to be drowned out by the noise. The reality is that some ICOs performed well and are reporting profits. including BinanceTezosTron, and Basic Attention Token.

The thing that is unnerving, however, is the high level of fraud risk and theft in the sector. Also the inaccuracy of the information offered to investors. So how can you mitigate this risk?

Banish the Coin Flip

Many of the key risks found in ICO investing — such as falling for a scam or choosing a project with a low likelihood of success — can be largely mitigated if the flipping of a coin is substituted by subjective research prior to investing. But first of all you need to understand where to focus your research efforts.

Media Shower’s ICO Manifesto for Founders, which is sort of a bible for prospective ICO founders (it certainly looks like a bible) states that the three most important factors in any digital token sale are:

  • People
  • Product
  • PR
Research the People

Let’s consider people & PR. One of the most effective ways to do your research is to use social media.  On the people front, find out everything you can about the team, especially the development team and the advisory board. Look up each team member for relevant experience. Google their names. Visit their LinkedIn profiles. Find out if the team has any crypto experience. Even more importantly – find out which projects, or ICOs, they were involved with and the impact they had. 

Analyse the PR

On the PR front I’d like to quote Oscar Wilde. “There is only one thing worse than being talked about – and that’s not being talked about”

Nothing is truer when it comes to ICOs. Thanks to Twitter on one hand, and Bitcointalk on the other, being talked about is a key success factor. You will find plenty of posts to give you a feel for what is being said about an ICO – positive or negative. Moreover, there are many other news sites, forums and blogs to read. In fact, you could go stir crazy from the sheer noise that is generated online, but you can be sure of one thing – you’ll learn a lot about your ICO if you invest the time.

A Tool to Turbo Charge your Analysis

If the thought of wading through so much data is a stumbling block, I would recommend the Causality ICO Analyzer for turbo charging this essential activity  The ICO Analyzer consumes ICO related data from major social media channels, news, online forums, blogs, the ethereum blockchain, major exchanges, ICO listing & rating sites, and website ranking services. The insights generated, and the underlying transformed data are made available to users via an interactive web-based dashboard. It’s really cool.

If you do the research, you’ll increase your chances of finding ICOs that return a profit. Much better than flipping a coin!


Also published on Medium.