Cryptocurrencies & Initial Coin Offerings: Are they Scams? - An Empirical Study

The volume of Initial Coin Offerings (ICOs) had risen steeply with an all-time high market capitalisation of close to 1 Trillion USD in December 2017. Since then, the digital asset market has slumped, retreating to approximately 200 Billion USD by mid-2018. Stakeholders of the crypto industry have pondered the reasons for this retrenchment and are increasingly focusing on the notion that many ICOs could be scams. A recent industry study even went as far to claim that 80% of all ICOs are indeed scams. In this paper, we investigate the question whether these scams are as common as claimed. We do so by first defining what a scam is and secondly, by drawing on empirical data to assess the number of cases fitting such a definition. Building on Principal Agent Theory and based on the statistical analysis of our empirical data set we attempt to establish the current state of affairs with regards to scams in the cryptocurrency world. The results of our study divert from salient beliefs.