The term initial coin offering (ICO) seems to be the new hype of the crypto community. It offers never before seen possibilities for consumers and companies but suffers from draw backs like a lack of regulation.
In 2017, an impressive number of 4.6 billion USD was invested in ICOs. Consequently, ICOs are of large public interest. Therefore, it is interesting to determine what influences the behaviour of investors.
Accordingly, the aim of this thesis is to investigate how general investment factors change in the disruptive environment of ICOs. Hence, in this context, relevant general investment factor - such as reputation, media coverage, corporate social responsibility, risk and other factors including macroeconomic situation, past performance and technological uncertainty - are considered.
The results show that, due to a lack of reliable measures for quantitative factors, qualitative investment factors gain greater importance for ICOs. Furthermore, the highest importance was assigned to media coverage, which is important for investors who want to overcome the high information asymmetries that exist for ICOs.
Table of Contents
1 Introduction
1.1 ICO as an emerging investment trend?
1.2 How do general investment factors change in the context of ICOs?
1.3 Theoretical approach to develop general investment factors for ICOs
2 Theoretical Foundation
2.1 The phenomenon of ICOs as a new investment form
2.1.1 Blockchain the underlying technology of ICOs
2.1.2 Functioning of cryptocurrency/tokens
2.1.3 Wallet the storage for cryptocurrencies
2.1.4 Whitepaper the company masterplan
2.1.5 Functioning of ICOs in detail
2.1.6 Comparing ICOs to other financing forms: Crowdfunding, VC and IPO
2.1.7 Discussion of the advantages of ICOs
2.1.8 Discussion of the disadvantages of ICOs
2.2 Introducing relevant management theories
2.2.1 How can agency theory help ICO investors?
2.2.2 Why is adverse selection theory relevant for ICOs?
3 Analysing general investment factors in the specific context of ICOs
3.1 What is the role of reputation in context of ICOs?
3.2 Importance of corporate social responsibility for ICOs?
3.3 What is the influence of media coverage on the investment decision?
3.4 How important is risk for an investment in ICOs?
3.5 Other factors that are important for ICO investment
3.5.1 Which impact has past performance for ICOs?
3.5.2 Can the macroeconomic situation influence investments in ICOs?
3.5.3 How does technological uncertainty influence the investment in ICOs?
4 Discussion
4.1 Extending existing investment-decisions literature into the context of ICOs
4.2 Helping managers to align ICOs to the investors’ preferences
4.3 ICO as an emerging field that needs more research
5 Conclusion
Research Objectives and Core Themes
This thesis investigates how general investment factors, such as reputation, corporate social responsibility, and media coverage, shift within the disruptive and volatile environment of Initial Coin Offerings (ICOs), aiming to provide guidance for managers on aligning their offerings with investor preferences.
- Analysis of ICOs as a revolutionary funding mechanism compared to traditional methods like IPOs and VC.
- Application of management theories (Agency Theory, Adverse Selection) to explain information asymmetries in ICO markets.
- Evaluation of qualitative versus quantitative investment factors for ICO participants.
- Investigation of the predominant role of media coverage and reputation in mitigating investor risks.
- Identification of technological uncertainty and security concerns as critical drivers for ICO investment decisions.
Excerpt from the Book
Security problems of ICOs
A disadvantage of ICOs is to be found in the lack of proper cybersecurity, which can lead to major risks for investors. The fast development of the ICO market has attracted many criminals. However, the focus of the offering companies is mostly on the project and the attraction of investors. Therefore, they often neglect to ensure security for the technical processes of an ICO. This has led to different threats for ICO investors. One widespread threat is scamming: fake ICOs criminals use to collect money without any counter performance (Chohan, 2017, p. 3). ICOs often raise money in the form of cryptocurrency (Bitcoins). These high-volume transactions also attract the attention of hackers. They target the wallets of the investors and try to rob the cryptocurrencies. For example, Veritaseum, a platform that hosted wallets of investors, was attacked by hackers who were able to capture up to 4.5 million USD (Strategy&, 2017, p. 6).
The most common form of robbing a wallet during an ICO is called phishing. Phishing is a very simple but effective method that enjoys great popularity. Hackers build a website that replicates a real website from a legitimate organization and thereby try to obtain financial or other confidential information like passwords or login data from users. Afterwards, they transfer cryptocurrencies to their wallets (EY, 2017, p. 32). Ten percent of ICO funds are lost due to attacks by cybercriminals. This number shows the vast extent of the cyber-security problem. Furthermore, for investors, additional damage is often suffered in the loss of sensitive personal data: e.g., photocopies of identification certificates, photocopies of credit cards, current phone numbers or bank account details (EY, 2017, p. 30,32,f.). Consequently, scam ICOs and hackers also damage the reputation of the whole funding method, as the bad media coverage scares potential investors.
Summary of Chapters
1 Introduction: Introduces the rise of Initial Coin Offerings as a disruptive financial innovation and outlines the research objective regarding investment factors.
2 Theoretical Foundation: Defines key concepts like blockchain and wallets, compares ICOs to traditional financing, and introduces agency and adverse selection theories.
3 Analysing general investment factors in the specific context of ICOs: Examines how factors like reputation, CSR, media coverage, risk, and technological uncertainty influence investor decisions in the ICO market.
4 Discussion: Interprets the findings by highlighting the shifting importance of qualitative indicators and provides practical recommendations for managers.
5 Conclusion: Summarizes the thesis, confirming that qualitative factors hold greater importance for ICOs than quantitative metrics due to information asymmetries.
Keywords
Initial Coin Offering, ICO, Cryptocurrency, Blockchain, Investment Factors, Investor Behaviour, Agency Theory, Adverse Selection, Reputation, Media Coverage, Corporate Social Responsibility, Market Volatility, Information Asymmetry, Cybersecurity, Digital Tokens
Frequently Asked Questions
What is the core subject of this thesis?
The thesis explores Initial Coin Offerings (ICOs) as a modern funding method and investigates how traditional investment factors behave within this unregulated and highly volatile market environment.
What are the primary themes discussed?
The work covers the functioning of ICOs, the application of economic management theories to blockchain-based financing, and the critical analysis of factors that influence investor decision-making, such as reputation and media influence.
What is the main objective of this research?
The aim is to identify how general investment factors, known in conventional financial markets, change or adapt when applied to the disruptive context of ICOs.
Which scientific methods are employed?
The author uses a literature-based theoretical approach, applying well-established management theories like Agency Theory and Adverse Selection Theory to explain the information asymmetries characteristic of the ICO market.
What topics are covered in the main body of the paper?
The main body systematically analyzes investment factors, including reputation, CSR, media coverage, risk, past performance, and technological uncertainty, while comparing ICOs to IPOs, venture capital, and crowdfunding.
How can this work be described using key terms?
The research is best characterized by terms such as Initial Coin Offering, Investor Behaviour, Information Asymmetry, Reputation, and Cybersecurity.
Why is media coverage highlighted as the most important factor for ICOs?
Due to the lack of traditional financial disclosure and regulation, investors rely heavily on media reports to evaluate the legitimacy of an ICO, making media coverage the predominant signal for trust and reliability.
How does this thesis suggest managers should respond to technological uncertainty?
Managers are advised to emphasize high security standards, invest in robust cybersecurity, and provide detailed whitepapers to mitigate investor fears regarding technology-related risks and project maturity.
- Quote paper
- Anonym (Author), 2018, Initial Coin Offerings as a new way to raise money? Investigating risks and opportunities from a consumer perspective, Munich, GRIN Verlag, https://www.grin.com/document/541441
