- Over 165 token sales were scheduled to close in October 2017, but only 40% were completed on time. The rest were delayed, extended, or cancelled entirely, many citing market conditions or shuttering operations after an anticlimatic start to their sale.
- While the number of sales and the total amount raised continues to rise, the average and median amount raised continues to fall–more signs the market is getting more discerning about who is getting funded.
- The number of projects raising $5 million – $40 million is also increasing, suggesting a crop of products and developments could come to the market in 2018.
One of the interesting aspects of the massive expansion of the cryptocurrency sector and particularly the ICO markets during 2016 and 2017 has been the proliferation of data that has begun to emerge as the markets mature. While the vast majority of our own research and writing revolves around examinations of upcoming ICOs, we have also maintained a series of articles representing thematic investigations of key issues relating to these evolving markets. In addition to our recent considerations of the geography of token sales and evolving regulatory attitudes towards the sector, our long running feature series has explored a number of central issues that continue to be highly relevant to the broader sector.
We add to that series today with a close look at the enormous number of ICOs that presented themselves to the market during October 2017. As we noted during our Q3 Summary, one of the most accurate descriptions of the sector at present is simply an acknowledgement of the range of competing trends exerting their influences, such as record individual and collective raise amounts and record ICO completions contrasting with an ongoing decline in average raise amounts. Recognition of the generally unremarked multi-month trend of declining median raise amounts further complicates images of a homogeneous ICO market smoothly advancing in a particular direction.
Within this context October 2017 stood out in a number of ways, one of which was the record number of ICOs that came to market during the month. Within the context of the prior three months, where 31, 45, and 59 sales were completed, respectively, October had 169 sales planned to close during the month. While our customary methodology is merely to record the results for sales raising more than $25,000, in this case our curiosity was piqued and we made the effort to track results for each of those 169 sales. Much like the broader ICO market we have been describing as riven by a variety of cross-currents, doing so yielded both expected and rather surprising results. Collectively they provide some interesting new perspectives on the complexities and intersecting trends of the sector.
The most striking initial observation from our study was that of the 169 ICOs scheduled to end during October only 69 actually completed a sale, with the balance either extending, postponing, or cancelling outright their own proposed sales. The composition of the 101 projects not completing their sales as planned can be further delineated: 25 postponed their efforts, 16 announced the cancellation of their planned sales and 60 projects extended their sales beyond the planned closing date. These three groups are surely not homogenous, and within each group a variety of explanations undoubtedly exists for the changed plans. This is particularly true within the ‘extended’ group where more than one ICO managed to raise substantial amounts prior to extending their raise. Nevertheless, it is thought-provoking to pause and consider the failure of 60% of proposed ICOs to complete their sales on schedule, particularly within a larger media context that appears to primarily discuss a so-called ever expanding series of ICO market.
Several conclusions emerge from a consideration of this data. One is that the average project proposing an ICO is simply not raising $10 million with nothing but a whitepaper and a website. Far more prevalent appears to be the case of strong projects seeking funding in the $10 million to $30 million range, frequently led by strong industry-specific teams addressing core opportunities in their sector of expertise, that struggle to capture the attention of the market. A second interpretation is that the struggles of many of these weaker projects is precisely not an indication of a weak market, but rather of a strong one. That the market is collectively turning its back on projects and investment opportunities that it finds unappealing is actually a clear sign of a rational market where investors are not motivated exclusively by greed or fear of missing out. Rather, this is probably best considered as a healthy measure of the ICO market; if a day ever arrives when all proposed ICOs are raising $10 million just for showing up it will actually be much more concerning.
In terms of broader trends, the October sales are largely inline with established patterns. The number of ICOs continued to rise, with 68 ending in October. Total amount raised declined to $662 million from September’s $941 million. While a meaningful decline, this still represents a tremendous amount flowing into new ICOs–well more than 6x the total amount raised during all of 2016–and even the decline appears to fall generally within a rising trend channel dating back to early 2017. At the same time, both the average raise and median amount raised declined in October. Each of those also represents the extension of ongoing trends. The average raise amount decreased from $15.9 million in September to $10.6 million in October, and the median raise amount fell from $2.8 million to $2.2 million.
Probably the most interesting aspect of October’s sales is the crystallization of what had previously been an intuitive impression of the ICO market as a bifurcated one where a few massive sales set records and captured the attention of a range of journalists while a second and far larger group was made up of companies struggling to raise even a few million. Considering Polkadot, which raised $144 million during a sale that closed in October, alongside the 101 proposed ICOs that failed to close their sales provides a pretty clear illustration of this pattern. That another 43 ICOs failed to raise more than $5 million–and with most of those actually struggling to get past the $1 million mark– further reinforces this idea that referring to simply “The ICO Market” misses the critical subtleties actually shaping the sector and the fates of companies within it. It’s also worth noting that in 2016, projects were raising $1 million and still celebrating.
Equally interesting is to consider that within this image of a barbell shaped market where a small handful of companies raise more than dozens of stragglers, there also exists a third group, what we have privately been referring to as a strong middle band of companies raising between $5 and $40 – $45 million. While $5 to $45 million is merely a loose band that has no concrete justification for being considered as a group aside from a loose correlation with common measures of venture-capital B and C rounds (themselves not fixed, of course) and an intuitive sense that these amounts represent entirely adequate amounts for a company with a strong team looking to advance a serious idea for a year or three, we nevertheless consider this is a significant band. The below chart, where ICOs below $5 million appear in black, while those raising above $5 million are scaled red, demonstrates the strength of this middle tier.
That more than $435 million was raised by this group, and this during a month that saw an overall declining cumulative raise amount, is a useful counterpart to images of a barbell shaped market suggested by a consideration of the extremes. While the barbell metaphor is useful, for it accurately describes a reality of these markets shared by the vast majority of companies conducting ICOs, such an image also obscures what may likely prove to be the most significant aspect of these complex markets, whether in terms of projects and companies developing projects poised to have lasting impacts, or in terms of returns for ICO investors.
Each of the above represent themes about which we anticipate having considerably more to say in the near future.