Fraudulent ICOs Have Raised More than $1 Billion: WSJ

ICO scams are said to have raised in excess of $1 billion since the cryptocurrency boom began, according to a new report published by The Wall Street Journal. Though the findings will likely be contested by investors, the report provides compelling evidence that a large number of coin offerings rely on fraudulent tactics to attract investors.

The Rise of the “Shitcoin”

Of the 1,450 initial coin offerings (ICOs) reviewed by WSJ, 271 were flagged for potential fraud. Combined, these projects generated nearly $1.1 billion in funding from investors who bought into dubious claims about guaranteed returns and huge ROI. That represents 21% of the total amount raised across the 1,450 projects, which are believed to encompass most of the ICOs targeting English-speaking investors.

Since 2017, ICOs are said to have generated more than $9 billion globally, according to data provided by Satis Group.

Although fraud isn’t always seen as black and white, WSJ analysts outed projects with plagiarized investor documents, promises of over-sized gains and incomplete or fake executive teams.

In the crypto world, these token projects are often referred to as “shitcoins.” A shitcoin refers to any altcoin that is said to be worthless because it lost value, failed to generate interest or was not created in good faith.

ICO Market: Bad Press Continues

This isn’t the first time researchers have drawn troubling conclusions about the ICO market. By February, it was shown that nearly half of all ICOs launched last year had already failed. A further 13% were labelled as “semi-failed.”

Deceptive ICOs are only one part of the problem. According to Ernst & Young, roughly 10% of ICO funds have been lost or stolen by cyber criminals looking to capitalize on the insatiable demand for digital currency projects.

ICOs themselves are also struggling to meet their funding-cap goals. By November of last year, only one-in-four ICO projects reached their fundraising target compared with 90% in June.

Token raises have generated nearly $4.6 billion in funding over the last five months, but funding amounts have declined sharply since the year began. The month of May is shaping up to be one of the smallest hauls for token projects since the crypto boom began in early 2017.

Earlier this month, Australia became the latest country to target “deceptive” ICO projects that promote “misleading or deceptive” statements.  An inquiry by the Australian Securities and Investment Commission (ASIC) resulted in several companies either modifying their ICO projects or halting them entirely.

The U.S. Securities and Exchange Commission (SEC) has been highly critical of ICO projects, arguing that all of them meets the traditional definition of a security.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Chief Editor to and Contributor to, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE and Forbes. Avid crypto watchers and those with a libertarian persuasion can follow him on twitter at @hsbourgi