Saturday, Jan. 4, 2020 12:30 PM - 2:15 PM (PDT)
- Chair: Zhiguo He, University of Chicago
Cryptocurrency Pump-And-Dump Schemes
AbstractPump-and-dump schemes(P&Ds) are pervasive in the cryptocurrency market.We find that P&Ds lead to short-term bubbles featuring dramatic increases in prices,volume, and volatility.Prices peak within minutes and quick reversals follow. The evidence we document, including price run-ups before P&Ds start, implies signicant wealth transfers between insiders and outsiders. Bittrex, a cryptocurrency exchange, banned P&Ds on November 24, 2017. Using a difference-in-differences approach, we provide causal evidence that P&Ds are detrimental to the liquidity and price of cryptocurrencies. We discuss potential mechanisms why outsiders are willing to participate and describe how our findings shed light on manipulation theories.
De-crypto-ing Signals in Initial Coin Offerings: Evidence of Rational Token Retention
AbstractUsing the market for initial coin offerings (ICOs) as a laboratory, we provide evidence that entrepreneurs use retention as a method to alleviate information asymmetry. ICO investors face a high degree of uncertainty because of the unregulated and opaque nature of the ICO market. Using a detailed dataset on 5,644 ICOs, we show that ICOs that retain a larger fraction of their tokens are more successful in their funding efforts and are more likely to develop a working product or platform. Specifically, we estimate that a 1 p.p. increase in token retention leads to a 0.1-0.3 p.p. increase in fundraising success. Moreover, we find that retention is a stronger signal when markets are crowded and investors do not have as much time to conduct due diligence.
- G2 - Financial Institutions and Services
- C6 - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling