Enhancing Trustworthiness May Augment Profitability in Crypto ICOs, From Recent Research.
On February 8, a comprehensive study conducted by the Hanken School of Economics in Helsinki, Finland, shed light on a notable aspect within the crypto industry - the significant influence of a perceived trustworthy appearance on investor funding in initial coin offerings (ICOs), registering an impressive 95% boost.
ICOs, analogous to traditional initial public offerings (IPOs), serve as a pivotal mechanism for raising capital to launch novel cryptocurrency-related products or services. Professor Sinh Toi Moi employed machine learning methodologies to scrutinize the facial features of individuals associated with 5,826 ICOs, with the objective of discerning the impact of these characteristics on perceived trustworthiness.
The outcomes of the study indicated that ICOs featuring team members perceived as highly trustworthy garnered an average of $2.91 million more, representing a substantial 95% increase compared to ICOs with team members perceived as less trustworthy. Nevertheless, the study sounded a note of caution, emphasizing the potential presence of a behavioral bias known as the halo effect, wherein a positive impression based on specific characteristics can lead to an overall favorable perception.
Interestingly, the research also revealed a nuanced downside to the reliance on trustworthiness. Despite its positive impact during the initial fundraising phase, facial trustworthiness exhibited a negative correlation with post-ICO token cumulative returns. This negative association extended to key metrics such as survival rates, listing on exchanges, employment outcomes, and code development activity. The correlation suggests that investors who may have overvalued ICOs during the initial fundraising period might endeavor to rectify their investments as subsequent developments unfold.
Professor Toi Moi asserted that his findings align with previous psychological studies, indicating that investors may be susceptible to behavioral biases, underscoring the potential misleading nature of facial impressions.
This study, notably one of the pioneering efforts to identify individual investor bias within the crypto ICO market, also posited that individual investors may compensate for their limited comprehension of technical aspects related to ICOs by relying on more accessible information, such as the perceived trustworthiness of ICO team members.
Furthermore, the study highlighted an intriguing correlation - the effect of facial trustworthiness is more pronounced when ICOs provide less code information on platforms like GitHub or present more intricate white papers. This aligns with prior research, suggesting that investors tend to place greater reliance on facial impressions when fundamental information about ICO products is scarce.
While not explicitly expounded upon within the study, the findings offer potential insights into why fraudulent actors may succeed in raising substantial funds during the crypto ICO period.