During the cryptocurrency explosion, ICOs, otherwise known as Initial Coin Offerings have also experienced tremendous growth. Due to the fact that these offerings are not fully regulated, it’s hard to guess exactly how many of these projects have popped up over the last year or so.
However, it seems like there’s a new one planning to be the next blockchain sensation everyday, and the potential for quick gains has tantalized inexperienced investors, leading many of them to throw money hopelessly at these projects. However is this a good idea? Here’s some things you may want to consider before investing in an ICO.
Since an ICO is the crowdfunding phase for a project, most of them don’t even have a product at the time of your investment. Typically they will have some kind of rough roadmap and maybe some proposals of how their project will work.
While that all sounds well and good, getting a product of any type to market is easier said than done. A lot of things can go wrong between that time, and if they run out of money for development or marketing it could be bad news for their investors.
You could also be quite disappointed if you’re hoping to make an investment in a product that will be ready to launch in a few months time. Since most of these companies are starting from square one, it could be years before you see the technology in the white paper actually develop into something that is polished and has a real user base behind it.
While the odds of finding an ICO with a functioning product are rather slim, you should do your best to evaluate their team and ask yourself if they are honestly capable of completing their mission. If there’s not enough information available for you to make this assessment, then it might be better to move on rather than to waste your money on something that may never be completed or viable in their chosen space.
While the ICO price is often given at a discount for early purchases, the fact is that many times the price of the token will drop after the fact. This is often from investors jumping from project to project hoping to make quick gains, causing others to panic and sell as well once they see the price dropping.
In the initial stages at least, the highest price point for the ICO’s token will likely be the short time frame directly after the ICO when it is first listed on an exchange. If you’re planning to buy into a particular project, this is the worst time to do so, as the price will likely be experiencing a huge pump.
What goes up must come down, and after this phase, investors may be distraught to see that the subsequent dump has left their investment below the price of the ICO offering, and if they would have waited, they could’ve gotten in much cheaper. While this does not happen in every circumstance, sometimes it’s better to wait a while to buy into a project for this reason.
However, in other situations, investors have bought into the ICO, and then immediately sold during this pump for a large profit. If you’re willing to take the risk, there is certainly money to be made here. Keep in mind that this is a tough game for a newbie though.
There have been a number of empty ICOs that have made no attempt to actually be anything other than a money grab. Those behind the project took investor’s money and had no intentions of developing a product.
While it’s not always totally obvious, there are often some red flags regarding these offerings which can include poorly put together plans, mysterious development teams, lofty goals with no real road map to get there, a lack of or a poorly written white paper, and no auditable code repository.
If you’re looking to make an investment in an ICO, you should spend a good deal of time evaluating their team. Are they real people? What experience do they have in this field? Where have they worked before? Do the product and the white paper make sense?
An investment like this requires more due diligence to protect yourself. You’d be surprised how many of these fake startups will simply lift information or images from other sources, hoping that investors will not bother to check up on what they’ve been told.
Some of these will actually have expertly put together webpages, which is what they use to fool investors. However, if their homepage is filled with a bunch of buzzword mumbo jumbo with no real explanations for their product then it’s probably best to run in the opposite direction.
If you are an American, chances are that you are going to be excluded from most ICOs anyway, and if you reside in another country, then you might need to check out security offerings laws where you live. Even if you are allowed to participate, you’ll likely be facing some intrusive KYC registrations in order to purchase your tokens.
These will typically apply to anyone, and not just in certain countries. Sadly, most legitimate ICOs will likely require this information from their investors, as they have a need to protect themselves legally. If they don’t, then it might actually be a red flag that something is fishy.
You could instead wait to purchase a project, possibly at a discount at the exchange sometime after the initial sale to avoid most or all of these issues. By purchasing at an exchange you have none of the hassles of the ICO, and you may even be able to buy more privately.
The initial offering may also have a minimum buy-in amount which will not happen on an exchange if you’re not ready to invest quite so much in a risky new venture. This also gives you the added benefit of seeing how a project has progressed on their promises, and if they intend to make good on what they’ve offered their investors.
In order to answer that question, you should ask yourself if you are prepared to lose the money that you plan to invest. If the answer is no, then you may want to rethink investing in an ICO, or at least lowering your potential investment to a more reasonable level. Coin offerings come with many risks, and even if you think that you’ve got everything under control, a lot can happen that could render your investment worthless.
These concerns do not stop at things the company may do wrong, but also outside forces such as governments who could step in and demand that they cease and desist operations. This space is still a bit of a legal grey area, and while some of them are registering, most of them have simply set up operations in countries without any restrictions.
In closing, it’s important to think long and hard about whether or not to invest in an initial coin offering. This is not something that should involve just five minutes of research. In order to be safe, you need to really familiarize yourself with the entire project.
That means taking the time to research each team member and to hopefully establish their work history that not only confirms that they are who they say they are, but also that they have the technical expertise to backup the project in the long run. Launching a blockchain company is no easy feat, and it will take the skills of many people who have likely already been successful in other ventures in order to pull it off.
While it’s okay to gather outside opinions, it’s never okay to use those as your only basis for making an investment. Keep in mind that many of the reviews you will see for these offerings are paid for or incentivized with referral programs.
That means that the poster may not be totally honest with you as to the details of the company in question. Instead, it’s your job as an investor to verify that relevant information is presented accurately. There’s simply no other way to do that other than putting in the work required to research the project.
However, if you’re careful and you do your research well, it is possible to make some good investments in ICOs. While there are some bad players who have given this space a bad name, there are also many others who are legitimate. You just need to take the time to pick through the massive heap of bad coin offerings to find them, and investors who take the time to do so are often generously rewarded for their efforts.