How to determine if you should invest in an ICO
Initial Coin Offerings or ICOs as they are known as, have become a topic of much interest to many casual investors. From a statistical standpoint we can see that there are 100’s of ICOs being launched on a near daily basis. However, their visibility is a bit suspect, and thus over time we can find ourselves missing out on some of the best ventures that the market has to offer.
Thus, to counter such problems we can earn a few tips and tricks that can not only help us stay informed, but also to make right choices when selecting between various ICOs.
The Basics of ICO
While we may have many personal ideas about making tangible investments, it always a good option to consider two main things when dealing with cryptocurrencies: time and analytical breakdown capacity. What this basically means is that we need to have a discretionary mind that is not swayed by every project it comes into contact with.
We need to weigh in many aspects like market trends, as well as long term projections to settle in on one or two ICOs. Additionally, it is also recommended that in order to find the right deal, we should sieve through at least 50 – 100 ICOs before settling down of 2-3 of them.
Another good area to cover at this point would be that of ‘Risk Management’. Due to the volatile nature of cryptocurrencies, it can be of much use to follow certain practices which in cases of emergency, can minimize our losses.
For example, investors are called to not invest more than 10% of total equity of any ICO. This is because the terms of any ICO are subject to change, and can potentially cause us to lose much money of the project turns out to be a scam or fraudulent, loses steam etc.
The Crypto Safety Hierarchy
Anybody who has dealt with crypto knows that the ICO game is full of risks, and should be treated the way ‘alt investments’ are treated. The crypto market can even be viewed as a pyramid, in which the bottom foundation is made of Bitcoin, and other successful currencies like ethereum, litecoin. This is followed by ‘leveraged investments and other alt dealings’ that have a certain amount of risk involved with them.
ICO’s lie at the top of this pyramid, and thus are prone to a large number of external factors. For example, their value can change almost overnight, thus the investor has to be strong willed and take things one step at a time.
Also, there are possibilities of law changes and other such factors which can contribute towards a large element of uncertainty when it comes to ICO’s.
Alt Investments VS ICOs
There is currently a major debate that looks at the ‘profitability of ICO’s and alt investments’. Due to the number of risk factors outlined in the previous section, ICO’s are definitely the more risk laden option of the two.
However, when taking into consideration the profit aspect of things, it is quite obvious that ICO’s are some of the best money multipliers out there. While every coin offering has the potential to go bust quickly, it also has the chance to create instant buzz and exponentially increase in value overnight.
How To Go About Your Investments
As far as the basics go, we have covered in quite substantial detail as to how ICO’s work, and the essential aspects that govern their profitability. Now we will look at how to go about making smart investments so as to maximize our gains, and not to fall into any “policy oversights”.
(i) Setting ICO Alerts:
This is the most basic step that anyone can follow to stay up to date with certain projects that we might be interested in. For starters, we can make use of web sites such as IcoAlert and IcoRating that are free and simple to use. They list out a whole host of upcoming ICOsand even provide a feature which allows us to stay informed about the starting and ending dates of these sales.
However, it should be understood that with the boom that the crypto market is currently experiencing, it is almost impossible for these websites to keep an accurate tab on all of the new ICO’s that are being released on a daily basis.
(ii) Follow Certain Twitter and Youtube Accounts:
This is one of the most potent ways of making the right choice when it comes to ICO’s. While many people do not disclose their investments on a public platform, there are always a number of names floating around on the twitter universe that potential investors can pick up on.
In regards to YouTube, there are certain trustworthy channels that provide resourceful information (they are however a few and far between). Some channels that can be checked out include CryptoBeak, CryptoBud, and Ian Balina.
All of these channels deliver quality advice and real investment tactics, rather than just talk about fancy future possibilities and technical jargon (which is quite often the case with most cryptocurrency related content on Youtube).
This option might not be popular with everyone, but there have been a few times when there has been good, meaty information being discussed on the threads in 4chan. Every once in awhile, there are certain users who post unkown projects that get very little response or views. These options can often turn out to be some of the best investment options that we might be able come across.
(iv) Chat Groups:
These are not the regular chat groups that we are a part of on facebook, but rather groups that are based out of forums which have people who like to discuss matters related to crypto. Whale groups, research groups, and even general cryptor groups are treasure troves of information related to digital currencies, crypto services etc.
This is another avenue that many people are starting to take notice of. However, with the growth of interest in sites like Reddit, there are often young investors who like to propound advice on this website. Thus, users need to be extremely sharp and careful when looking at information on these message boards.
On a Closing Note
As has been stated time and again in this guide, the crypto market is full of risks and thus needs to approached in a wise, calculated manner. With so many ICOs coming out every single day, it can often be an impossible task to sieve through all of the rubbish to find one quality venture out there.
However, with that being said, it should be remembered that ICO investments can change our life around forever (if the cards are played right). Due to the infancy of the crypto market right now, the field still provides users with a massive scope to make large profits.
If one makes the right deals, there is a high possibility that the individual might never have to work a single day again in his/her life again. (c) bitcoinexchangeguide.com
What Are the Risks and Rewards of ICO Investing?
Investing in initial coin offerings is a high risk/high reward endeavor. That means that while it is possible to generate exuberant returns within only a few months, you also run the risk of losing all of your investment capital. Never invest more in ICOs than you are willing to lose!
Very High Potential Returns
Some of the best performing ICOs managed to increase the value of their tokens 10-fold and more. These sort of returns are rarely seen in the stock market and are effectively non-existent in the bond markets, which is why ICOs have gained such popularity in recent months.
For example, the ICO of the digital currency investment management platform Iconomi raised over five million dollars in September 2016 and issued its ICN token at a price of around $0.13. On May 26th, the ICN token was trading at over $1.40, which marks a return on investment of almost 1000 percent within nine months.
Another example of a successful ICO was the ICO of Ethereum. The Ethereum foundation ran a crowdsale to fund its smart contract platform in the summer of 2014, where it issued 60 million ether tokens to early backers. The issue price of ether was around $0.30 per token. Today Ethereum’s ether is trading at over $200.
As you can see, the potential returns from investing in an ICO can be massive, which is the primary reason for the current boom in ICOs.
However, the high expected return of investing in ICOs also comes with a substantial amount of risk, including the risk of losing your entire invested capital.
A High-Risk Asset Class
When it comes to investing in ICOs, there are several key risks of which to be aware. They come in the form of operational risk, the risk of fraud, market risk, and regulatory risk.
Operational Risk: Investing in ICOs is not as easy as buying bitcoin. You have to deal with different platforms that all function in a slightly different way. This creates the operational risk of accidentally sending funds to a wrong address or forgetting your password or authentication codes. Also, the platform itself can have unforeseen technical issues. This can easily lead to a loss of your entire investing capital.
Fraud Risk: An unfortunate aspect of the ICO market is that there have been numerous incidents of ICO scams. Fraudulent ICOs usually come in the form of an impressive looking crowdsale page with a compelling story of a fictitious project for which scammers are raising funds.
Once investors send funds to the project’s bitcoin address, the scammers disappear with the funds when their fictitious crowdsale has ended. Hence, it is smart to conduct thorough research before investing in an ICO and to look for any possible red flags that could indicate fraudulent activities.
Market Risk: Another risk is that the developers are simply not able to pull off the project for which they are raising funds. Should a project in which you invest fail, its new token will underperform and you will lose the majority of your invested capital. This would be referred to as market risk and is not much different than when you invest in a publicly traded company’s stock.
Regulatory Risk: Finally, there is a regulatory risk that could adversely affect your ICO investments. For example, should financial regulators put a stop to initial coin offerings and decide to ban them as a new form of capital raising, then the value of your token could most likely drop significantly and the entire ICO market could collapse.
As you can see, initial coin offerings are a high risk/high return game. So what’s the bottom line? Never invest more than you can afford to lose.
How to determine if you should invest in an ICO
1. The first thing that everyone agrees is most important, is the team. The people who are behind the coin. Who are they? Are they well-known? Big names in the tech-world? Or are they shady scam-artists? Absolutely do research and go with your gut. This person should have some interviews out somewhere – if it’s a legitimate coin that the team cares about, then they will be out promoting it! Check to make sure that there are enough people who are actually working on this project, and that they have people covering every base when it comes to launching a new blockchain.
2. The second thing is sort of a summary of points I’ve seen being made, and that is: function. What does this coin do? You definitely do not want to invest in a coin that has a catch-all, vague description and no interface. Examples of good coins that have a purpose are things such as WAVES (crowdfunding for ICOs;) or STEEM (Blogging to earn;) or the recently successful BAT (Basic Attention Token, created a web browser.)
3. Aesthetics and professionalism do matter. Really good websites, easy to read and detailed instructions, transparent whitepaper and roadmaps; all of these things are signs that this is a serious venture with real people putting 100% effort into it. A safe coin to invest in will have videos that are well-made, a clear and easy to understand bounty system, and be active on all social media. This sounds like a vapid way to judge a company’s merit, but it’s very practical when you reason that people will put forth their most professional efforts when they really care.
4. This is sort of like the one above, but a little bit different: community. Is this growing in popularity? Is there more and more press for this coin? Are you seeing ads and articles all around? When a majority of the worth of the token is going to come from the amount of people that also invest in that coin, then looks matter. That being said, it’s very important to check that there is substance behind all of the hype. There should be an equal (at least) amount of energy put into the product as there is being put into the ICO. Find a happy medium: a large enough fan base to get the coin moving after the ICO is over, but substance and hard work behind all the shiny graphics.