How Sentiment Impacts the Success of Blockchain Startups - An Analysis of Social Media Data and Initial Coin Offerings

The blockchain technology is subject to intensive discourse on social media. One example is the promotion of Initial Coin Offerings (ICO) as a new financial instrument for startups. As ICOs are generally low-regulated, potential investors and entrepreneurs are faced with decision-making under uncertainty. This uncertainty might be partially offset by social factors. Based on established behavioral, economic and information systems theory, we investigate how different social media channels are linked to the capitalization of blockchain startups. We present empirical evidence from online search trends, financial data and a corpus of 231,758 tweets related to 524 ICOs. Our results suggest that higher search volume, positive sentiment and the increased use of emotive language on Twitter are linked to a high capitalization. The results are relevant for startups and potential ICO investors.

[1]  Mohit Yadav,et al.  Exploring Signals for Investing in an Initial Coin Offering (ICO) , 2017 .

[2]  D. Cumming,et al.  Signaling in Equity Crowdfunding , 2012 .

[3]  Andrew K. Przybylski,et al.  Motivational, emotional, and behavioral correlates of fear of missing out , 2013, Comput. Hum. Behav..

[4]  Johan Bollen,et al.  Twitter mood predicts the stock market , 2010, J. Comput. Sci..

[5]  Christopher Hahn,et al.  Initial Coin Offering (ICO) , 2018 .

[6]  Satoshi Nakamoto.  Bitcoin : A Peer-to-Peer Electronic Cash System , 2009 .

[7]  S. Trevis Certo,et al.  Influencing Initial Public Offering Investors with Prestige: Signaling with Board Structures , 2003 .

[8]  David L. Deeds,et al.  The impact of firmspecific capabilities on the amount of capital raised in an initial public offering: Evidence from the biotechnology industry , 1997 .

[9]  Vitalik Buterin.  A NEXT GENERATION SMART CONTRACT & DECENTRALIZED APPLICATION PLATFORM , 2015 .

[10]  William Mann,et al.  Digital Tokens and Platform Building , 2018 .

[11]  Stephen P. Ferris,et al.  The Effect of Issuer Conservatism on IPO Pricing and Performance , 2012 .

[12]  J. Liew,et al.  Twitter Sentiment and IPO Performance: A Cross-Sectional Examination , 2016, The Journal of Portfolio Management.

[13]  Michele Marchesi,et al.  The ICO phenomenon and its relationships with ethereum smart contract environment , 2018, 2018 International Workshop on Blockchain Oriented Software Engineering (IWBOSE).

[14]  Bill McDonald,et al.  Regulation and financial disclosure: The impact of plain English , 2013 .

[15]  M. Thelwall,et al.  Sentiment Strength Detection in Short Informal Text 1 , 2010 .

[16]  S. Macht.  Reaping Value-Added Benefits from Crowdfunders: What Can We Learn from Relationship Marketing?† , 2014 .

[17]  Eric Abrahamson,et al.  Management Fashion: Lifecycles, Triggers, and Collective Learning Processes , 1999 .

[18]  Xiaofeng Wang,et al.  Evaluation of initial cryptoasset offerings: the state of the practice , 2018, 2018 International Workshop on Blockchain Oriented Software Engineering (IWBOSE).

[19]  J. Gans,et al.  Initial Coin Offerings and the Value of Crypto Tokens , 2018 .

[20]  Stefan Stieglitz,et al.  AN INVESTIGATION OF INFLUENTIALS AND THE ROLE OF SENTIMENT IN POLITICAL COMMUNICATION ON TWITTER DURING ELECTION PERIODS , 2013 .

[21]  Oliver Hinz,et al.  Blockchain , 2020, Bus. Inf. Syst. Eng..

[22]  Bill McDonald,et al.  IPO First-Day Returns, Offer Price Revisions, Volatility, and Form S-1 Language , 2013 .

[23]  Paul C. Tetlock.  Giving Content to Investor Sentiment: The Role of Media in the Stock Market , 2005, The Journal of Finance.

[24]  Rashid Ali,et al.  Cryptoeconomics: Data Application for Token Sales Analysis , 2017 .

[25]  Patrick Paroubek,et al.  Twitter as a Corpus for Sentiment Analysis and Opinion Mining , 2010, LREC.

[26]  Usman W. Chohan,et al.  Initial Coin Offerings (ICOs): Risks, Regulation, and Accountability , 2017, Cryptofinance and Mechanisms of Exchange.

[27]  Hal R. Varian,et al.  Information rules - a strategic guide to the network economy , 1999 .

[28]  Florian Glaser,et al.  Pervasive Decentralisation of Digital Infrastructures: A Framework for Blockchain enabled System and Use Case Analysis , 2017, HICSS.

[29]  Don Tapscott,et al.  Blockchain Revolution: How the Technology Behind Bitcoin Is Changing Money, Business, and the World , 2016 .

[30]  D. Kahneman,et al.  Aspects of Investor Psychology , 1998 .

[31]  H. Stanley,et al.  Quantifying Trading Behavior in Financial Markets Using Google Trends , 2013, Scientific Reports.

[32]  Nicole Novielli,et al.  How to ask for technical help? Evidence-based guidelines for writing questions on Stack Overflow , 2017, Inf. Softw. Technol..

[33]  Matthias Bank,et al.  Google search volume and its influence on liquidity and returns of German stocks , 2010 .

[34]  Zhi Da,et al.  In Search of Attention , 2009 .

[35]  Mike Thelwall,et al.  Sentiment strength detection for the social web , 2012, J. Assoc. Inf. Sci. Technol..

[36]  W. Powell,et al.  The iron cage revisited institutional isomorphism and collective rationality in organizational fields , 1983 .

[37]  Philipp G. Sandner,et al.  Identifying Leading Blockchain Startups on a Worldwide Level , 2017 .

[38]  Wendi A. Miller,et al.  Information Avoidance: Who, What, When, and Why , 2010 .

[39]  Peter D. Turney,et al.  Emotions Evoked by Common Words and Phrases: Using Mechanical Turk to Create an Emotion Lexicon , 2010, HLT-NAACL 2010.

[40]  Yang Li,et al.  Sentiment analysis of commit comments in GitHub: an empirical study , 2014, MSR 2014.

[41]  Richard Baskerville,et al.  Fashion Waves in Information Systems Research and Practice , 2009, MIS Q..

[42]  Guido Caldarelli,et al.  S 1 Appendix , 2016 .

[43]  Stefan Feuerriegel,et al.  Is Human Information Processing Affected by Emotional Content? Understanding The Role of Facts and Emotions in the Stock Market , 2016, ICIS.

[44]  T. D. Wilson,et al.  Models in information behaviour research , 1999, J. Documentation.

[45]  P. Hacker,et al.  Crypto-Securities Regulation: ICOs, Token Sales and Cryptocurrencies under EU Financial Law , 2017, European Company and Financial Law Review.

[46]  H. Leibenstein.  Bandwagon, Snob, and Veblen Effects in the Theory of Consumers' Demand , 1950 .

[47]  Hugo Benedetti,et al.  Digital Tulips? Returns to Investors in Initial Coin Offerings , 2018, Journal of Corporate Finance.

[48]  G. Giudici,et al.  Why Do Businesses Go Crypto? An Empirical Analysis of Initial Coin Offerings , 2018, Journal of Economics and Business.

[49]  Stefan Stieglitz,et al.  Emotions and Information Diffusion in Social Media—Sentiment of Microblogs and Sharing Behavior , 2013, J. Manag. Inf. Syst..