With some new coins and tokens that gained dozens, hundreds, and even thousands of percent in a few months or years, a well-chosen ICO can be a lucrative field for a savvy investor. Although the largest wave of ICOs is probably already over, some interesting projects can still appear in this rapidly developing field of cryptocurrencies. What to look for in an ICO and what factors can help you in deciding?
What Is an ICO
ICO (Initial Coin Offering) is basically the crypto equivalent of a crowd-funded IPO (Initial Public Offering). The ICO is a way for start-up crypto companies to get support from investors through crowdfunding. The idea is very simple – an individual or team of people come up with a business idea to come up with a product or service and investors invest in this ICO if they like what they see. This new ICO will issue a new cryptocurrency, the ICO’s new coin or token, which can be equated to shares in a traditional company.
At the initial phase, this new coin or token can be acquired at a considerable discount. If the project succeeds, the coin or token goes up in price, giving an opportunity to the investor to realize huge gains. In the case that the project fails, the investors might end up in a loss.
After the public sale, many ICOs projects list their coin or token on a crypto exchange. It should be noted that this in itself is not a guarantee of any success. The asset might fare well and appreciate or it might fall into complete disuse, losing its value entirely. The sobering fact is that some altcoins (also known as “shitcoins”) bring in little to no value when it comes to technology or investment potential. The market mechanisms decide about the future of each asset and very probably not all of some 5,400 cryptocurrencies (as of June 2020) will remain viable.
Which ICO to Back?
The first thing you need to know before purchasing any coin or token is how to conduct appropriate research. We all have different risk tolerances, knowledge, and experience, and this shapes our view on whether a coin or token is a good or a bad investment.
This is totally subjective, and there are no right or wrong answers. Everyone has a view for and against practically everything, and it is no different in the crypto world.
The important thing is to be equipped with sufficient knowledge to uncover potential red flags, and to identify things to consider before investing your hard-earned money.
The research is mostly similar for both the ICOs and the more established coins or tokens. Although there are no guarantees in any crypto investments, you need to conduct your own due diligence to limit your risk and hopefully make a profitable investment. It is a good idea to approach your research objectively and with skepticism to protect your investment as best you can.
How to Decide on ICO
How do you decide whether an ICO, coin or token is a good investment?
Take your time and do your own research! Just because others are recommending, promoting, and praising an ICO, does not mean they are right. Keep in mind that there are other profit-making opportunities in crypto as well, such as trading, staking, etc. It is your money, so you should conduct your own due diligence.
If you find out that there is a lack of information, or that there are major gaps in the information you are trying to collect, simply walk away. Move on and look into other opportunities. Do not fall into the FOMO (fear of missing out) trap.
The following points, in no particular order, are the factors that many consider when evaluating ICOs, coins, and tokens.
Viability of the ICO and the Idea Behind It
What is the idea behind the project? Is it realistic, useful and applicable? What issues in the world does the ICO project tackle? What need in the market does it try to solve? Does it have global reach and potential? Can it get the needed support from influential entities? How big is the community and how fast is it growing? How useful and usable is the product for the masses? How attractive is it for the investors?
Circular Tokenomics / Circular Economics
Does the ICO project make good use of circular tokenomics? Tokenomics is a new, transparent, token-based economy using Blockchain technology. On one side of circular tokenomics is the user who uses tokens and trades them for other assets, on the other side are tokenized companies that offer users the opportunity to invest in their projects. Users can earn or buy tokens that can be used for membership benefits or for discounted fees on the platform. They can trade tokens on the open market and can also use them for all kinds of services. The circulation of tokens among users within tokenomics strengthens trust, reduces transaction costs, and leads to an overall higher attractiveness of the platform. How well can the project make use of these important features?
Team Identification
Who are the members of the team? Get to know the team members and advisors who form the team, what their roles are, their background and history. This serves as a good indication of the competence of the team but does not guarantee success or failure of the ICO or coin.
Hard Cap
What is the hard cap of the project? The hard cap is the maximum volume of money a project plans to raise during the initial stage of funding of their ICO. The hard cap should make sense; it shouldn’t be too low or too high, since this would undermine the substance of the project.
Website
What can you learn from the website of the project? Does the website reflect the quality of the project? Is it presentable, open, transparent?
Project Roadmap
Analyze the roadmap and all the features around the project. Does the team stick to their deadlines? How serious are they about their project? How committed are they?
Whitepaper
Is the whitepaper clear? Analyze it carefully and compare it to what is stated on the website and in the roadmap, noting any discrepancies that might indicate potential problems.
Social Media
What coverage does the project have in social media? What kind of followers does it have? Who are these followers? Which social platforms does the project use and how? Keep in mind that a smaller community of involved users and developers can mean more than a large crowd of speculators.
Reviews
Assess the information and professionalism of communication from the team across their social media platforms and news outlets. Study multiple reviews, keeping in mind that some can be biased one way or another.
Financial Distribution
How will the ICO funds be used? The projects should publish their plans and keep the community and all the users well informed and up to date.
ICO Terms and Conditions
What are the prices and discounts during various presale and sale phases? Is such pricing more interesting for real investors or for speculators? What does it say in the small print? Are funds collected in line with what is stated?
Comparison With Similar Projects
How is this ICO or coin different from others? What are the differentiating factors? Are there grounds to expect they will succeed or even surpass their competitors?
Ethereum Dependent
Is the ICO and the future of the project dependent on Ethereum? While it is quite easy to create new tokens on an Ethereum platform, some experts feel that Ethereum based projects could lead to centralization, which is contrary to the original idea of cryptocurrencies. If the ICO starts on Ethereum, what should the future developments be, according to the roadmap?
Bonus Tokens
Some ICOs offer bonus tokens to their early supporters and investors. In the long run, these free bonus tokens can be a source of great profit. If the ICO project offers bonus tokens, should this move primarily attract speculators or does it really make sense to the investors? In that case, make sure you know all the steps required to get these bonus tokens.
Which ICO to Choose?
Often, you might find that you cannot conduct every check in the world before investing in an ICO or coin. You also do not have all the time in the world to decide. There is no way to guarantee that every seed you sow will take root, sprout, and give yield. Similarly, there is no way to guarantee that every ICO will turn out to be a success. A sensible approach is to make an informed decision after conducting thorough research. Hopefully, it will turn out well for you.
