The Wisdom of Crowds in FinTech: Evidence from Initial Coin Offerings

Abstract

Certification by online analysts on a FinTech platform that harnesses the "wisdom of crowds" is associated with successful initial coin offerings (ICOs). Using novel data on ICO analysts' backgrounds, we show that more favorable ratings by analysts with proper expertise significantly predict fundraising success. Analyst ratings also help detect potential fraud ex ante. We document that analysts are incentivized to issue informative ratings to advance their careers in future ICOs. Analyst ratings positively predict long-run token returns and negatively predict return volatility. Overall, our results suggest that a market-based certification process that builds on the expertise and incentives of analysts is at play in financing blockchain startups.

Keywords: Crowdsourcing, Wisdom of Crowds, ICO, Blockchain, FinTech, Analyst expertise, Analyst incentives

JEL Classification: L26, G14, D81, D82, D83, G12