Retail investors are shying away from ICOs as institutional investors enter the blockchain space in their numbers. The reasons range from little progress, inferior marketing and an increase in the number of scam ICOs which has seen returns from Initial Coin Offerings reduce drastically while crypto hedge funds continue to grow in popularity.
ICO Frenzy on its Way Out?
A report by GreySpark Consulting Partners on the state of ICOs shows that over 50 percent of ICOs conducted between 2017 and 2018 did not reach their targets and that over 890 token sales did not raise a coin. However, 40 percent of the ICOs representing 743 companies raised over $1 million.
The data is a sign that the 2017 cryptocurrency mania seems to have subsided and investors seem to have become more informed and are therefore careful on the projects they are choosing.
According to the report, only 15 percent of ICO projects surveyed in the second quarter of 2018 has a working product compared to only 6 percent in the first quarter. GreysPark compiled their report using data from ICOData.io and ICO-Check.com up to August 2018.
There has been a fear of the unknown regarding the future of initial coin offerings with many developers acknowledging that market saturation, regulations, and well-informed investors have contributed to reduced interest in token sales. The other reasons, according to the report remains to be:
“lack of traction, disappointing product advancements, scams, difficulties in execution, no market and poor marketing or go-to-market strategy.”
Hedge Funds Come to the Forefrunt
However, all is not gloom and doom, one market that seems to be flourishing is the crypto hedge fund market. The report says by September that 146 firms had hedge funds that are specifically focused towards blockchain and cryptocurrencies, up from only nine cryptocurrency-focused projects in the year 2012.
Unlike the conventional hedge funds, crypto-related hedge funds are made of long positions that involve higher risk levels. According to the report, the number of hedge funds is likely to increase to between 160 and 180. Hedge fund manager and co-author of the report Eitan Galam said:
“Financial institutions have started to engage, although carefully, with their first cryptocurrency-related projects and the whole industry is evolving rapidly with the clear objective to attract the big money.”
Hedge funds are run by a smaller number of persons, usually about five, who are usually people running away from low yields associated with traditional finance methods and are looking for greater returns.
Collectively these funds have up to $5 billion in crypto assets held on behalf of mainly institutional investors.