Putting Numbers on the Coins: The Pricing and Performance of Initial Coin Offerings

Abstract

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