The ICO Rating Game: Biased Ratings of Crypto Experts in Initial Coin Offerings

The initial coin offering (ICO) market relies on the “wisdom of crowds”, ratings given by the collective opinion of crypto experts, to overcome asymmetric information problems in the fundraising process. We investigate the biases of crypto experts in providing ratings in ICOs. We conjecture that experts are incentivized to provide optimistic ratings to promote ICO fundraising success due to their future opportunities as advisors in other ICOs. We examine our conjectures using ICO ratings on ICOBench.com during the period of 2016 to 2019. Consistent with our conjectures, we find that expert ratings in ICOs exhibit systematic optimism relative to the algorithm-generated objective ratings, and experts who give optimistic ratings to a greater number of fundraising successful ICOs are more likely to be hired as advisors in other ICOs. Further, we find that ICOs with more optimistic expert ratings and ICOs hiring experts as advisors are associated with greater likelihood of fundraising success but not that of exchange listing and survival.