An exploratory study of Initial Coin Offerings : A better understanding of the ICO market and its fraudulent and unregulated nature

Initial Coin Offerings (ICOs) has become a new way for firms to raise capital, in 2017 and the first quarter of 2018 they raised approximately $12 billion. If a person managed to buy the top 10 performing ICOs in 2017, they would have had an average return of 10,400%. These returns have created considerable media attention and increased focus from law-makers in different countries. As this is such a new phenomenon there is an insufficient amount of research done; this thesis addresses this gap. By conducting an exploratory study where we summarize the data available, we describe the most critical issues in this new market. We have found that the market experienced a large speculative bubble where large sums of money entered the market. The easy money encouraged unethical actors attempting to exploit investors. The market has no standards or supervision, and it is rife with hacking and scams, mainly due to the vast information asymmetry between buyers and sellers. These issues have made legal institutions react, and the U.S. has been the most prominent enforcer in the market. They claim that most ICOs to date (2018) have been illegal offerings of securities and have started to focus on issuers who act fraudulently. Many other countries have warned about ICOs, but so far, few have taken significant action.