Initial coin offerings (ICOs): market cycles and relationship with bitcoin and ether

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 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.