Cryptocurrency has gotten off to a rocky start this year. From market highs that saw the price of bitcoin approach $19,000 per coin to early-January pricing of $15,000 per coin, the ground has shifted.
And it gets worse. Looking at news.Bitcoin.com data reveals that 46% of the ICO’s that were started in 2017 have either failed to get off the ground, or have failed completely, leading to an unstable foundation for the current initial coin offering market.
Or so one would think.
While the industry has experienced a significant decrease in market cap since the all-time-high bull runs of 2017, the ICO market in Q1 of 2018 has been nothing short of thriving.
According to Coinschedule, an estimated $4.8-billion in ICO funding has been allocated or raised in Q1 already, a number that eclipses the entire 2017 year alone. Are the same mistakes for 2017 being repeated?
One of the most notable insights that investors are sure to realize is that a failure rate of 46% is extremely low in the world of business and startup ventures.
While it may seem ominus, comparison to traditional technology startup markets reveals that failure rates upward of 90% in the first five years are by no means uncommon. They are expected.
Applying this to the remaining 54% of 2017 ICO survivors would imply that, at minimum, another 50% will fail over the next 12-24 months. Investors would be wise to maintain a close eye on their ICO startups, looking for red flags that may show early signs of ICO downturns.
As blockchain startups that have raised money press forward in 2018, one of the main identifiers of progress will be delivery of code and progress toward their decentralized visions.
While most will not have clear key performance indicators as there is often little to no live product, no user base and no revenue, Delivery Delta on code and milestone achievement may give investors an extra edge.
Look for code release and frequency on Github repositories, live update notifications and assess original plans compared to actual delivery dates. A delta that continues to devolve will often signal poor execution, leadership and, team dynamics, and could be a sign of turbulent times to come.
The great ICOs from 2017 have already realized that the hard work comes after the money has been raised. Connected to the difficulty of building decentralized products is a clear understanding that the community will need to continue to be developed, maintained, and engaged with on an ongoing basis.
Community has, in the ICO world, replaced content as king.
ICOs that continue to work well through 2018 will not only keep their community engaged with regular updates, but as releases get closer and live production nears release, the community should still be growing.
Another delta to seek is the change in relative engagement rate, growth of users in the community or active users in the community.
To keep these insights relatively straightforward look to track or compare number of active users at any specific point in the day. Or assess how many messages accumulate over a three-, 12- or 24-plus-hour period. Alternatively monitoring how many new users are signing up to engage with the community as a whole can also give you rough estimates of change in either direction.
As every investor or company knows, cash is the oxygen that fuels a company to success. Understanding how coins are converted into cash and how that cash intends to be allocated to the business should be standard in every white paper an investor reviews.
Where the 54% of survivors will thrive however, is in being able to meet delivery schedules and development based on company valuations and potential cash flow — that is, at current rates, 50% or less or what it used to be.
Knowing what minimum cash thresholds are needed and what the ICO’s estimated burn rate is will be instrumental in assessing the likelihood of success.
While leading ICOs from 2017 and those launching in 2018 will continue to be able to execute, pivot and deliver at fractions of what was initially raised, there will be a bottom the cryptocurrency market, and subsequently an ICO’s token, bitcoin and ethereum price, can reach. Once these levels are reached, unless an ICO has liquidated all necessary capital for the execution time period at hand — they may not have enough oxygen to thrive.
As always, avoiding market hype, reducing emotion-based decision making and reassessing ICOs based on subtle delivery delta, community delta and liquidity deltas will give investors additional insight into which of the remaining 54% of 2017 ICOs will survive this year.