There is one question I have been getting a lot from my readers lately. And that question is about the number of ICOs and new coins in crypto and whether the current market can support them all, or will the value of the overall market just get thinned out and diluted when there is not enough new money coming in. It’s an interesting theory because it’s sort of unique to crypto markets, which are very small relative to other more traditional markets and many ICOs are supported by accepting BTC or Ethereum which people already hold and not new fiat. So while you would probably never hear someone ask this question in regards to the NASDAQ, it may be a valid question for crypto markets.
So to answer this question I decided to do a little research and look at the number of IPOs in traditional markets in the U.S. and how they compare to new ICOs in crypto.
Doing research on upcoming crypto ICOs can be a little difficult as some are very obscure or are taking place in countries where I may not be familiar with the whole crypto market there. However, my research has shown that so far this year there have been about 370 ICOs that are either completed, currently raising money, or upcoming soon. So in 3 months of this year so far we have about 370 ICOs. The number may actually be higher, as these are only the ones I can confirm.
Next we look at IPOs in traditional markets. In the U.S., there were a total of 150 IPOs in 2017, for the entire year. This number includes every IPO listing above $50 million in market cap, which in American markets is considered micro-cap and above. Just for reference, small-cap is considered to be $300 million and above. Micro-cap stocks are often very volatile, and the companies generally have no proven track record, sales, or even a working product. So it is a good comparison to most crypto ICOs.
Total American IPOs in 2017 – 150
Total ICOs so far in 2018 – 370 (Approximate)
Since crypto is often compared to the tech bubble of 1999 I looked to the IPO crazy days of the dot com bubble in 1999, and there we see a total of 486 new IPOs for that entire year. So as you can see, crypto is already on pace to beat that number this year and we are barely into March. Just for reference, 1999 saw the most IPOs in the last two decades.
Now, some may argue that I am comparing only American IPOs and that crypto is world wide. I personally don’t believe that comparing the worldwide market for IPOs is a good comparison for crypto simply because of the severe difference in market caps and inflow when you combine all those countries. However, for arguments sake if we include the countries of China, India, Hong Kong, Australia, Japan, UK, and South Korea, we get 1236 total IPOs for 2017.
So even with worldwide totals and comparing them to crypto, it seems as though crypto ICOs are exceeding the rate at which would be sustainable in the current market. Crypto ICOs are exceeding the IPOs of most every major country, and even close to the total of all of those countries.
Another thing to keep in mind is the amount of overlap of these ICOs in crypto compared to IPOs. IPOs around the world are for a huge variety of companies in all different fields. Most crypto ICOs are very similar at their core, so there is virtually no diversity at all among the ICOs, which makes the numbers even more shocking when viewed through that prism. It’s as if in traditional markets, those 1236 IPOs were all for semiconductor companies and the only difference was that they all made slightly different chips, and some even made exactly the same chips. If that was the case, there would be quite a bit of investor worry that the IPO markets were not healthy. But this seems to be exactly what we have in the crypto ICO market.
As for my analysis after doing this research, I would say it is very plausible that the current market cannot sustain the number of ICOs that are being created while maintaining the price action that crypto investors have become accustomed to..not even close. So what must happen is either a majority of these ICOs need to fail and go to near zero, or a huge influx of money must enter the market. This scenario has me bearish on most new coin offerings in the long term. In the short term, most will be nothing but pump and dump style investment schemes which can provide profit for the savvy investor. However, long term most of these have no chance of succeeding and will harm the overall market until they are cleared out.