Initial coin offerings have become the stuff of legend among speculators seeking quick windfalls, yet most people are more likely to lose money investing in digital tokens following the sales.

While more than $3 billion has been raised this year by technology startups using the method to circumvent traditional ways of raising capital, a closer examination shows that gains are often fleeting if the tokens are purchased after the offerings. The Bletchley Ethereum Token Index, which tracks 25 of the largest tokens, including Bancor, Civic and OmiseGo, has dropped by half since June.

The index includes tokens when they are at least a month old, have a market capitalization of about $90 million and trade on prominent online exchanges. It doesn’t include returns some select investors realize right after an ICO, or tokens that have tiny market caps.

Of the top five ICOs by amount raised, three have gone down significantly since the offerings. EOS, which raised $185 million, is down 45 percent. Bancor, which garnered $153 million, is down 47 percent, and kin, with about $100 million raised, is down 27 percent.

"It’s a bit of a coin flip whether a particular project goes to zero or skyrockets," said Lex Sokolin, partner at Autonomous Research LLP.

Regulators worldwide are warning that regular investors could get burned badly investing in coin offerings. China prohibited all ICOs. In July, the Securities and Exchange Commission warned investors to beware of fraudulent deals. The token sales “will end in tears” for many investors, Thomas Farley, president of New York Stock Exchange, said on Oct. 10.

While some investors have realized astronomical returns on ICOs, those have typically been smaller offerings with low prices. And discovering those winners among some 1,000 tokens issued, and the new ones offered daily, is getting harder. A third of around 140 token offerings tracked by researcher TokenData declined in price.

In most cases, investors would have been better off investing in bitcoin, which has more than quadrupled in price since the beginning of the year.

When Funstrat Global Advisors LLC compared performance of bitcoin with that of 630 digital currencies it tracks in an index, bitcoin came out ahead during most time periods this year and last. With 54 percent of the tokens it tracks, people would have made higher returns by investing in digital currencies ether or bitcoin, according to TokenData and Autonomous Research.

Individuals buying into ICOs are usually at a disadvantage compared with institutional investors, who usually come in during presale fundraising rounds. Institutional buyers often get tokens at a discount of as much as 50 percent, so they can make money even if the token’s value drops from the ICO price.

"It just feels like people are jumping in because of the hype, they heard of these fantastic returns in ICOs," said Sam Doctor, managing director at Fundstrat. "There will always be successful ICOs, but at the moment it’s very, very difficult to differentiate what makes sense and what doesn’t."

Bloomberg News