Regulatory Arbitrage and Initial Coin Offerings

This study examines how crypto startups weigh regulatory exposure against the breadth of their investor base when raising capital through initial coin offerings. We find that high ex ante appeal projects strategically limit investor access. Excluding investors from regulated markets is associated with greater fundraising success and long‐term viability, even after controlling for project quality. These findings suggest that high‐appeal projects perceive regulatory costs as outweighing the benefits of a larger investor base. As a result, regulatory efforts may have the unintended consequence of deterring high‐appeal projects from raising capital from investors in regulated countries while encouraging low‐appeal ones.