Crypto failures 'worse than we thought'

Crypto failures 'worse than we thought'

A cryptocurrency mining computer is displayed at the Computex show in Taipei in June. (Reuters Photo)
A cryptocurrency mining computer is displayed at the Computex show in Taipei in June. (Reuters Photo)

NEW YORK: Almost a third of all cryptocurrencies that were financed through online fundraisers last year have lost “substantially all value”, while the vast majority are trading below their listing price, according to a report published on Friday by Ernst & Young.

The professional services firm analysed 141 projects that raised money in 2017 through initial coin offerings (ICOs), in which new virtual currencies are issued to buyers. It found that 86% of the coins have fallen below the initial price at which they traded on online exchanges.

Companies typically raise money through ICOs to build new technology platforms or to fund businesses that use cryptocurrencies and blockchain, the software that underpins them.

EY analysed 86 projects that raised funds in 2017 and found 71% still have no working product or offering in the market. The percentage is significantly higher than what could be expected with traditional venture-backed software startups, it said.

“This looks worse than we thought,” said Paul Brody, global innovation leader for blockchain technology at EY.

The EY report comes following a cryptocurrency investing frenzy, during which startups raised hundreds of millions of dollars online, with often little more than a business idea and a handful of employees. The 2017 ICO boom paralleled a spike in the price of bitcoin, which peaked last December at almost $20,000.

Since then, the market has fallen by more than 70%. Despite the crash, large financial institutions, including Fidelity Investments and Goldman Sachs, are launching products or backing companies in the crypto space.

Most tokens issued by ICO companies were supposed to be utilised as a means of payment on the websites or networks they were building.

Yet of the companies that did build a working product, seven also started accepting payments in traditional currency, a move that reduces the value of the tokens to investors, EY found.

Some have stopped accepting their own tokens altogether, it added.

The quality of ICO companies is “much much worse” than that of the first internet startups of the late 1990s - such as the short-lived pet supplies seller Pets.com - whose stocks experienced a dramatic boom and bust, Brody said.

“At least from Pets.com you could get pet food,” Brody said. “They had an actual working business, they had a product.” 

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