Ernst & Young – the big four auditor and global professional service company – has recently released a report on Friday, October 19, showing the performance of ICOs in the last year. The goes to note that the ICO fundraising method has done “little to inspire confidence” among investors.
A Huge Majority of ICO Tokens Are Below Their Listing Price
The report called as “Class of 2017” shows the state of ICO market of one year down the line. Back in December 2017, EY released an ICO report showing data for a total of 372 projects. Of this, 110 are standout ICOs which amount to 87% of all funds raised. Moreover, from the name itself, it is clear that the report determines the class of ICOs in terms of progress and value.
The report also goes to show the shocking outcome of how much the ICOs have lost in just one year. If an investor created a portfolio with all ICO tokens from the “Class of 2017”, he/she would have lost 2/3rd of the initial investment. To put a broader picture, only 25 out of the 110 projects have any sort of working prototype or product.
Further details show that ICOs turned out to be a much bigger gamble than expected. Nearly 86% ICO tokens have dropped below their initial exchange listing price. Rather only 10 projects of the 110 were responsible for 99 percent of any positive gains. This is like less than 10% success ration or just one in ten projects that proved to be later valuable over the initial listing. Additional details suggest that the successful projects mainly belong to the blockchain domain. This shows that the crypto projects have just failed to make an impact in the market so far.
Analysis of Projects With a Functional Prototype or Product
In addition to the investment returns, EY also analyzed projects with a working prototype or product. The report states that only 29 percent of all projects have managed to give hardly 15% from the end of 2017 till now. On the contrary, 71% of the projects have “no offering in the market at all.”
Of all the projects offering a functional prototype or product, seven of them accept fiat payments. EY says that accepting fiats “reduces the value” of investors’ tokens. In the report, EY writes:
“Abandoning their ICO investors by de-emphasizing the role of their tokens [….] projects accepting fiat usually offer some benefits for token users, similar to points in traditional loyalty programs. However, users do not use utility tokens to store value. To use the platform, users have to purchase the necessary amount and incur related transaction costs and token volatility risk.”
EY also mentions a sort of double-bind which continues to grip the project. The auditor notes that many projects aim “[t]o become a means of payment, utility tokens have to be stable.” However, “If it remains stable, the token is of little interest to speculative investors.”
Global innovation leader for blockchain technology at EY, Paul Brody, told in an interview saying “this looks worse than we thought.”
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During a recent Q3 earnings call, the world’s largest producer of semiconductors, Taiwan Semiconductor Manufacturing Company (TSMC), forecasted weakening growth for the rest of 2018 due to declining demand for cryptocurrency mining hardware. This outlook comes despite anticipating a significant increase in demand for its 7-nanometer processing chips from the high-end smartphone industry.
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TSMC Anticipates Weakened Fourth Quarter Growth
Lora Ho, the chief financial officer and senior vice president of finance for TMSC, predicts that declining demand for cryptocurrency mining hardware will offset much of the growth expected to be generated through sales of its 7-nanometer chips.
Ho : “Moving into fourth quarter, despite the current market uncertainties, our business will benefit from the continuous steep ramp of 7-nanometer for several high-end smartphones as well as the demand for 16/12-nanometer for the launches of new-generation GPU and AI. However, this growth will be partially offset by continued weakness in cryptocurrency mining demand and inventory management by our customers.”
C.C. Wei, TSMC’s chief executive officer and vice chairman, reiterated Ho’s predictions, stating: “Our second half of 2018 business will be strongly supported by the 7-nanometer ramp-up, which is mainly driven by a few new smartphone launches. However, our business is also negatively impacted by further weakening of cryptocurrency mining demand.”
TSMC Reduces Annual Growth Forecast
Taking all factors into account, Wei estimates TSMC’s 2018 growth will be approximately 6.5 percent, falling slightly short of the company’s prediction of between seven percent and nine percent total growth for 2018, as delivered during the company’s previous earnings call.
Ho predicts that TSCM’sl fourth-quarter revenue should reach between $9.35 billion and $9.45 billion – a 10.7 percent sequential increase in the company’s revenue.
Ho also predicts TSMC to post a fourth-quarter gross margin of between 47 percent and 49 percent, and an operating margin of between 36 percent and 38 percent.
Do you think that demand for mining hardware will increase again? Share your thoughts in the comments section below!
Images courtesy of Shutterstock
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