The market for initial coin offerings (ICOs) is currently unregulated, and many blockchain companies use “digital hype” as a marketing tool to promote their products. To predict the effects of digital hype during ICOs on blockchain-based projects and outcomes, this study adopts an information economics perspective. Digital hype is defined as prelaunch marketing activities that function like cheap talk signals to promote radically new, high-risk cryptocurrencies. With a comprehensive, manually collected data set of more than 2,479 ICOs between 2014 and 2019, the authors track ICO status and estimate the effect of hype on the success of blockchain projects, correcting potential selection and endogeneity issues. The findings indicate that digital hype scores are positively correlated with the success of blockchain projects. Information asymmetry in these markets also allows inferior projects to drive out superior ones, as the desire to raise funds incentivizes low-quality projects to overhype themselves during the ICO stage, which undermines market efficiency. A newly derived competitive network that describes the competitive relationships among projects reveals that competitive intensity moderates the effects of digital hype: if a blockchain project faces competition from multiple similar projects, the signals emitted by digital hype become blurred.
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