Page 5 - July 2018 Disruption Report

DIGITAL CURRENCIES JAJNULAYRY20210818
DIGITAL CURRENCIES Digital tulips?
In a white paper on ICO returns, Boston College’s Hugo Benedetti and Leonard Kostovetsky
concluded:
Initial coin offerings (ICOs), sales of cryptocurrency tokens to the general public, have recently been used as a source of crowdfunding for startups
in the technology and blockchain industries. We create a dataset on
4,003 executed and planned ICOs, which raised a total of $12 billion in capital, nearly all since January 2017. We find evidence of significant ICO underpricing, with 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. We also study the determinants of ICO underpricing and relate cryptocurrency prices to Twitter followers and activity. 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
Figure 5: Initial coin ouffenrirneggpuoslta-litsetindg ocufmfeulraitnivge sre.turns
Figure 5 shows (in blue) the average buy-and-hold cumulative returns (for horizons less than 250 days) from investing in ICOs after they are listed on an exchange. For comparison, it also shows average returns to investing instead in a token index, which is a value-weighted average of all tokens, (in gray) or investing in Bitcoin (in yellow) at the time each ICO is listed.
POST-LISTING CUMULATIVE RETURNS
Post-Listing Cumulative Returns
ICOs Token Index (match)
Bitcoin (match)
900% 800% 700% 600% 500% 400% 300% 200% 100%
0%
0 10 20 30 40 50 60 70 80 90 100110120130140150160170180190200210220230240250
Days after Listing
43
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Post-Listing Cumulative Return in Percent