Today we take a look at ICO’s and whether you should be investing them in not. There is an awful lot you should be looking at before parting with your hard-earned cash.
What is an ICO?
ICO stands for initial coin offering and is essentially a fundraising mechanism, similar to crowdfunding, in which new projects sell their underlying crypto tokens in exchange for early capital to fund project development.
There are currently more than 1500 coins available on different exchanges, with hundreds more in the process of being listed on exchanges. It’s important to understand that not all cryptocurrencies are born equal! Some have their own blockchain, but most are issued on top of another Blockchain. A good example is ERC-20 tokens, which represents a standard of interoperability within the Ethereum Blockchain. Ethereum is a general purpose blockchain where different tokens can be issued on top of its blockchain without creating their own infrastructure.
The biggest problem with ICOs, as they gain more and more public attention, is that they are largely unregulated. There are few obstacles to entry for anyone wishing to create a white paper, design a simple landing page and start collecting funds via a digital wallet. We are seeing more and more occurrences of scam sites been set up and millions of dollars in investors money simple disappearing! In saying that, there are still huge opportunities available for investors, once some research is done.
Here are 5 things you should consider before even thinking about investing in a project or ICO.
1. Psychological preparation – Remove FOMO!
Before you proceed any further, you must complete this step first!
FOMO or Fear Of Missing Out can destroy you! You must remove all emotional connections before starting any research or assessments. The cryptocurrency world is dripping with it.. It creates mass hysteria, panic buying and leads to misjudged investments. If you’ve decided to research an ICO because you’ve seen “everyone on Facebook” talking about it, you’re already in trouble. But you still have time to remove these anxieties..
Forget about “To the Moon”,”Lambo soon” and all that other bullshit! Forget about how much you’re going to make, how much can I risk..
You need to become a cold, calculating analyst now. Detach and become emotionless. Then move on!
We will look at this in more detail in an upcoming article.
2. Analyze the team and their background
Companies that are serious about doing a token offering will have no concerns about publicizing their true identities. Most will have details regarding their previous experience and nearly all will have a Linkedin account. Read their resumes and past working experiences.
There should be detailed information about their founding team, investors, and advisors. But questions you should be asking: How long has the team been together? Have the team members worked together on another project before? If the team is quickly put together, then the ICO has a higher risk of being a money grab
If a company is not transparent with this information, the red flags should already be appearing. There is no reason why a legitimate company would want to hide the people behind the project.
When it comes to the advisors, companies often list well know people in the industry. Understand that a lot of advisorships are for marketing purposes only! They may consult once a month with a 20-minute phone call. Scam ICO’s will often list very well known people in the industry.
3. Check the Roadmap & Whitepaper
If you are happy that the team is strong, this is the next phase you should check. There is no point coming to this point without first ensuring the team is capable. To me, this is the critical part and will determine how much you willing to invest.
What does the company actually aim to achieve? Does the token or coin fix a current problem? Is there a need for it to be a decentralized service? For example, does a dating app really need to utilize Blockchain technology? The white paper should answer a lot of these questions and more.
The roadmap should lay out how they plan to achieve their goals and the timescale. Look at these carefully, if a company is promising the world in 3-6 months, for me, that’s a red flag. These type of developments can take years to come to fruition!
This is where you should also be looking to see what the valuation of the token is, how much bonuses the team and advisors are receiving and if possible the market cap. Once again you need to be careful here, if large bonuses are been handed out, it’s highly likely that once the token/coin does hit the exchanges there will be a huge dump and the valuation will fall. Indeed it is often cheaper to purchase cryptocurrencies AFTER the ICO!
4. Is there an active and growing community?
One of the key things to look for is active online communities. Most transparent & legitimate ICO’s will have a telegram, facebook, twitter etc accounts. But be careful, it doesn’t take much to set these up and manipulate them with bots.
Personally, I like the Reddit groups, there is usually a member of the team in these groups and it’s a good place to get answers to your questions.
But, again watch out for FOMO inducers! Plenty of people will be pushing the project, trying to create a drive and demand for the token. Remember, often these people are paid by the companies for this. Just look at Youtube, there is 100’s of videos of creators actively pushing shit coins, some will even acknowledge they’ve been paid!
Check for press releases and how they have been received.
5. Do you own research & Risk Assessment!
As an informed investor, it is your responsibility to conduct thorough, independent research before making any investment of capital. Now is the time to complete your risk assessment. What are the chances of success? Is the ICO overpriced? Also look at upcoming competitor projects and other companies in the sector? Perhaps this ICO is inferior to current solutions? What’s the current stage of the ICO? If they are struggling to meet their target, it indicates people are not convinced the company can meet their expectations.
Remember! You MUST treat cryptocurrency like any other investment! You wouldn’t invest in other “real world” projects without due diligence. Otherwise, you might as well go to your local bookmaker and pick a random horse in the next race!
Last year saw a huge boom in the ICO’s and this seems set to continue and increase in 2018. Though ICO investing can be extremely lucrative, there are some important points to bear in mind. According to Bitcoin.com over the over 900 ICO’s from last year, 46% of last year’s have already failed. This equates to over 400!! Indeed, if you include the projects with ongoing concern, this figure rises to 59%!
Just like in the non-crypto world, there is a high failure rate among new businesses. Many of the dead ICOs were doomed from the start and would have been easy to sidestep, with many being outright scams! Nevertheless, even the best-constructed whitepaper, team and idea still carries the risk of failure. Remember nothing is certain in any business but even less so in the crypto space at the moment.
Only invest, what you can afford to lose. I can’t stress this enough! If you are planning on getting a loan to get into cryptocurrencies, you’re already screwed!
The regulatory treatment of cryptocurrencies is evolving and is no doubt on its way in some shape or form. Regulation is a sensitive subject in cryptocurrency and that will have to be saved for another article.
Website that Lists Upcoming and Ongoing ICOs