The ICO Rating Game: Biased Ratings of Crypto Experts in Initial Coin Offerings

40 Pages Posted: 4 Feb 2021 Last revised: 11 Sep 2022

See all articles by Baixiao Liu

Baixiao Liu

Peking University HSBC Business School

John J. McConnell

Purdue University

Jingfang Wang

Florida State University

Date Written: February 1, 2021

Abstract

We investigate the biases of crypto experts in providing ratings in ICOs. We conjecture that experts are incentivized to provide optimistic ratings to promote ICO fundraising success due to their future opportunities as advisors in subsequent ICOs. Using ICO ratings on ICOBench.com during the period of 2016 to 2019, we find that expert ratings in ICOs exhibit systematic optimism relative to the algorithm-generated objective ratings, and experts who give optimistic ratings to a greater number of fundraising successful ICOs are more likely to be hired as advisors in subsequent ICOs. Further, we find that ICOs with more optimistic expert ratings and ICOs hiring experts as advisors are associated with greater likelihood of short-term fundraising success but not long-term success. The findings suggest that the incentive of crypto experts and the associated optimism in their ratings help ICO startups raise funds but do not help crypto investors in achieving competitive outcome.

Keywords: Initial Coin Offering, Wisdom of Crowds, Crypto Experts, Incentives, Ratings, Optimism

JEL Classification: G1, G2, G3, M4

Suggested Citation

Liu, Baixiao and McConnell, John J. and Wang, Jingfang, The ICO Rating Game: Biased Ratings of Crypto Experts in Initial Coin Offerings (February 1, 2021). Available at SSRN: https://ssrn.com/abstract=3776935 or http://dx.doi.org/10.2139/ssrn.3776935

Baixiao Liu (Contact Author)

Peking University HSBC Business School ( email )

John J. McConnell

Purdue University ( email )

MGMT, KRAN
403 West State St.
West Lafayette, IN 47907-2056
United States
765-494-5910 (Phone)
765-494-7863 (Fax)

Jingfang Wang

Florida State University ( email )

Tallahasse, FL 32306
United States

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