Initial coin offerings considerations for an investor

Abstract

Cryptocurrency and blockchain has conjointly become trending buzzwords in the business world today. As the blockchain technology has become older and more researched, its areas of usage have broadened far beyond payment solutions like Bitcoin. In venture financing, blockchain has been used to establish a prominent fundraising tool, called initial coin offerings (ICO). An ICO is a crowdfunding method resembling initial public offerings, where ventures issue a blockchain based token, subject to public sale. ICO has become a lucrative financing method for blockchain affiliated ventures. The hype around cryptocurrency has led to increased ICO attention. Everyone can invest in an ICO, and thus, it has become a popular investment opportunity. This thesis looks at ICOs as investment objects, with the aim to find out what an investor should consider before investing. Additionally, we assess whether ICOs are profitable financial instruments relative to its close substitutes, and evaluate measures to avoid scams. The study is based on 104 companies that have had ICOs, and analyzes what factors influence both ICO success rate, and post-ICO capital gains. Our results indicate that hype and pricing is influential on the outcome of an ICO, which in turn is important for subsequent price movements. We have also observed that venture capital seed funded companies performed better in the ICO aftermath. By further using the results, we have also found that investors may use these parameters when investing in an ICO to outperform both our benchmark cryptocurrency Ethereum, and other ICOs.