Initial coin offerings (ICOs): market cycles and relationship with bitcoin and ether
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Initial coin offerings (ICOs): market cycles and relationship with bitcoin and ether Christian Masiak & Joern H. Block & Tobias Masiak & Matthias Neuenkirch & Katja N. Pielen
Accepted: 18 April 2019 # The Author(s) 2019
Abstract We apply a vector autoregression (VAR) model to investigate the market cycles of Initial Coin Offerings (ICOs) as well as their relationships with bitcoin and ether. Our sample covers 104 weekly observations between January 2017 and December 2018. Our results show that ICO market cycles exist and that shocks to the growth rates of ICO volumes are persistent. In addition, shocks in cryptocurrency returns have C. Masiak : J. H. Block Chair of Management, Trier University, Universitätsring 15, 54296 Trier, Germany
C. Masiak e-mail: [email protected] J. H. Block (*) School of Economics, Department of Applied Economics, Erasmus Institute of Management, Erasmus University Rotterdam, P.O. Box 1738, 3000 Rotterdam, DR, Netherlands e-mail: [email protected] T. Masiak Saarland University, ZeMA gGmbH, Gewerbepark Eschberger Weg 46, Geb. 9, 66121 Saarbrücken, Germany e-mail: [email protected] M. Neuenkirch Department of Economics, Trier University, Universitätsring 15, 54296 Trier, Germany e-mail: [email protected] K. N. Pielen Department of Psychology, Trier University, Universitätsring 15, 54296 Trier, Germany e-mail: [email protected]
a substantial and positive effect on ICO volumes. In contrast, the volatility of cryptocurrency returns does not significantly affect ICO volumes. Our results are robust to using (i) the number of successfully completed ICO campaigns instead of ICO volumes and (ii) ICO data from a different data source. Our study has implications for financial practice, in particular for cryptocurrency investors and entrepreneurial firms conducting ICOs. Keywords Initial coin offering (ICO) . Blockchain . Cryptocurrency . Distributed ledger technology . Entrepreneurial finance . Bitcoin . Ether . Vector autoregression (VAR) model JEL classifications G11 . E22 . O16 . L26
1 Introduction Cryptocurrencies are digital currencies that rely on a distributed ledger technology (DLT) (Fisch 2019). They emerged with the invention of bitcoin in 2008. Cryptocurrencies, such as bitcoin or ether, have recently gained momentum, and a hype has emerged around them. The market capitalization of cryptocurrencies has skyrocketed, and public awareness has grown considerably. Bitcoin prices reached a peak of approximately US$19,361 per bitcoin in December 2017. This hype, together with the diffusion of DLT, has promoted Initial Coin Offerings (ICOs) as a new financing instrument for entrepreneurial firms (Adhami et al. 2018; Amsden and
C. Masiak et al.
Schweizer 2018; Boreiko and Sahdev 2018; Fisch 2019; Huang et al. in press). In an ICO, DLT-based ventures create their own cryptocurrency and distribute it among investors against, for instance, bitcoin or ether (Fisch 2019). The ICO website CoinSchedule.com records that from 2013 to 2018, more than US$28.0 billion has been raised in
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