More than half of ICOs are scams - May 20, 2018

More than half of ICOs are scams

ICOs are less safe than many had hoped: a whopping 81% of them are straightforward scams according to a new study. No wonder countries one after another ban or regulate them strictly. Some successful cryptocurrencies are also turn out to be frauds. Even Bitcoin is used for Ponzi schemes sometimes.

A new study shows that a whopping ratio of initial coin offerings (ICOs) are scams. The study by Satis Group “attempted to classify ICO’s by quality. This encompasses the lifecycle of an ICO, from the original proposal of fundraising availability through to the most mature phase of trading on a cryptocurrency exchange”. The study only included coins above market cap of $50 million.

Most of them are scams

Satis Group found that 81% of ICOs are straightforward scams. They defined scams as “Any project that (…) did not have/had no intention of fulfilling project development duties with the funds, and/or was deemed by the community (…) to be a scam.” This means that more than two thirds of all coin offerings are fake and only seek to take people’s money. In the meanwhile, SEC launched a website to educate people about the dangers of these scams.

Fate of coins and tokens before going on trade

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Another 6% of ICOs failed and 5% of them went dead. Failed projects were unable to complete their process, while dead ones simply did not become traded on exchanges. This means that only 8% of all ICOs were legit and fulfilled their destiny to some scale. However, almost 3% of traded coins are dwindling, which means that they have failed to provide any transparent progress and plans. Only around 4.5% of all ICOs can be considered successful or promising.

ICOs are the most dangerous

The danger of ICOs isn’t a new phenomenon. They are considered to be highly risky investments and are regulated around the world. China and South Korea banned ICOs altogether. In the United States, ICOs are not banned but strictly regulated. If a company wants to issue altcoins, they have to get licenses and register with authorities. The European Union said to plan a regulation like in the States and most countries are planning to do something with altcoins.

Companies also started to take care of dubious coin offerings. We also wrote about how Twitter, Google and Facebook banned ICO adverts from their platforms. The forum Reddit and gaming platform Steam also had problems with cryptocurrencies and they stopped accepting them as payment options.

Other legal problems

Not only ICOs might be scams but some (moderately) successful cryptocurrencies as well. Questra World for example found investors in Western countries, but Belgium’s Financial Services and Markets Authority already issued warning against them. They believe that their system is indeed Ponzi-scheme like. The public also tries to fight against these “investments” there.

In the meanwhile, OneCoin was banned in Germany for dealing without authorization in a multi-level marketing structure. Italian authorities believe that it’s a Ponzi scheme, while China arrested several of its members. In India, police prepared charges against Ruja Ignatova, the founder of OneCoin because of the fraudulent nature of the currency.

Lately, the fame of the most well-known currencies is also used for schemes. In India, the police has just arrested two individuals for operating a $2.6 million Bitcoin based Ponzi scheme. In the US, celebrities are also used for scams: the founders of the ICO backed by boxer Floyd Mayweather and producer DJ Khaled are charged with fraud.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.