Digital Tulips? Returns to Investors in Initial Coin Offerings

About 56% of crypto startups that raise money through token sales die within four months of their ICO

Researchers Hugo Benedetti and Leonard Kostovetsky from Boston College carried out a recent study that analyzed 4,003 executed and planned ICOs which had raised a total of $12 billion since January 2017. They found evidence of significant ICO underpricing which average returns of 179% from the ICO price to the first day’s opening market price, over a holding period that averages just 16 days. Even after imputing returns of -100% to ICOs that don’t list their tokens within 60 days and adjusting for the returns of the asset class, the representative ICO investor earns 82%.

After trading begins, tokens continue to appreciate in price, generating average buy-and-hold abnormal returns of 48% in the first 30 trading days.

They also study the determinants of ICO underpricing and relate cryptocurrency prices to Twitter followers and activity. As they stated in the abstract of the paper, “While our results could be an indication of bubbles, they are also consistent with high compensation for risk for investing in unproven pre-revenue platforms through unregulated offerings.”

The researchers determined that only 44.2 percent of startups survive after 120 days from the end of their ICOs. The researchers, Hugo Benedetti and Leonard Kostovetsky, examined 2,390 ICOs that were completed before May.

The full research paper can be found via the link below.