Initial Coin Offerings and Herd Behavior

The correlation between amount of capital raised in initial coin offerings (ICOs) and the price of bitcoin during 2017 and 2018 is a blatant displayal of herd behavior related to blockchain technologies like cryptocurrency. ICOs serve as a method of fundraising whereby the seeking project trades their underlying token for bitcoin or ether. Herd behavior is a widely accepted phenomenon where a group of people act collectively without a central source of direction. This means that the individual mimics group behavior, rational or not The first reason for such a behavior is linked to social pressure and the desire to fit in. By following a group, the individual is more likely to become a member. The second reason is the rationale that a decision is more likely to be correct if more people believe in it. The change in amount of capital raised during 2017 and 2018 compared to price change of one bitcoin is can be described as quantified herd behavior.   

In beginning months of 2017, the total amount of capital raised via ICOs started around $14 million while the price of one bitcoin increased from $750 to $3200. By December the total amount of capital raised in ICOs reached $1.7 billion and the price per bitcoin peaked just shy of $20,000. In January of 2018 the total amount of of capital raised via ICOs fell below that of december 2017 at $1.5 billion and by December it fell all the way to $74.5 million. The amount of capital raised from ICOs in 2017 increased by 12,000% while the price of one bitcoin increased by 2,566%. In 2018 the amount of capital raised decreased by about 95% while the price of bitcoin fell by about 82%. An trailing and greater percent change in the amount of capital raised from ICOs demonstrates a case of herd like behavior on steroids. Furthermore, it looks as if the driving force for herd behavior related to capital raised from ICOs was the price of bitcoin. 

Area for further research: Was the increasing amount of capital in ICOs due to investors’ reaction to the price of bitcoin, or was it due to the same demand stimulus that fueled demand for bitcoin?    

(2019). Bitcoin price index monthly 2017-2019 | Statistic. Retrieved from
ICOdata – ICO 2018 Statistics. (2019). Retrieved from


About mforgan

International Business major originally from San Francisco. Interested in how financial markets create value for individual firms or vice versa and how consumer behavior plays into the equation.

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