The Pricing and Performance of Cryptocurrency
The European Journal of Finance, Forthcoming
31 Pages Posted: 10 May 2018 Last revised: 26 Jun 2019
Date Written: May 23, 2018
This paper examines the performance of cryptocurrencies issued in initial coin offerings (ICOs) over a three-year period after the initial exchange listing. Average (median) ICO underpricing amounts to 15% (3%), even though 4 out of 10 ICOs destroy value on the first trading day. Liquidity, market capitalization, and high-low price ratios predict returns. Long-run buy-and-hold returns are positive for the mean and negative for the median. For holding periods between one and twenty-four months, the median ICO depreciates by 30%. Evidently, there is substantial positive skewness in the cryptocurrency market. Further, a size effect emerges from the data as an empirical regularity: Large ICOs are more often overpriced and underperform in the long run.
Keywords: Initial Coin Offerings, ICOs, Token Sales, Token Offering, Cryptocurrency, Digital Currency, Virtual Currency, Distributed Ledger Technology, Blockchain, Smart Contracts, Blockchain Finance, Crowdfunding
JEL Classification: G24, G32, K22, L26
Suggested Citation: Suggested Citation