Initial coin offerings (ICOs) are fast becoming the order of the day. Startups, VC firms and even regular companies are using it to generate extra revenue for their projects.
For investors, ICOs can be a pretty great investment vehicle, often netting them significant returns on investment. However, because of the largely unregulated nature of initial coin offerings and the cryptocurrency market itself, investing in ICOs can be very risky.
As of now, it’s still the wild west, where just about anything goes. Of course, the Securities and Exchange Commission (SEC) is doing its best to crack down on some of the scam ICOs available.
But even that isn’t as effective as directly shutting them down. What they are doing is simply notifying the unsuspecting public of the scams and hoping that they pay attention.
Unfortunately, people realize they’ve been duped a little too late, owing to the sheer number of coins the SEC has to vet.
The best solution to not getting scammed is to understand what you should and shouldn’t do. As with all new technologies, cryptocurrency investing is still largely uncharted waters. You don’t know what you’re getting into, you just hope for the best.
Sadly, this approach to investing is defeatist and risky at best. Even shrewd and intelligent people are getting scammed through this strategy. Why would you just give away your money without doing any due diligence?
Yet, this happens every day, with people being scammed and shady ICO founders walking away with millions of dollars.
This article hopes to show you what you should do and not do when it comes to investing in ICOs. You need to be smart about your investments, learn how to identify real projects, and more importantly, the profitable ones.
Things You Should Do When Investing in ICOs
Real World Application
The first thing you need to check for is the project backing the token sale. Does it have real world application? Is it practical? Can it truly solve a problem? Or is it just hot air? Is the project really viable?
These are the first few questions to ask when you’re thinking of investing in an ICO. You should always verify its real world applicability. Most scam ICOs aren’t very detailed about the projects, so you won’t really find a lot of substance.
The one thing you will find though, is claims that the project will “change the world”, “disrupt sectors”, “is a revolutionary technology” and so much more. Don’t fall for those claims if you cannot identify a tangible real world problem that it solves.
Availability Of Competition
Someone once said that the universe often gives the same ideas to multiple individuals at once in the hopes that at least one of those people gets it done eventually.
The reality is that for every ICO backed project, there’s at least one competitor doing the same thing –or at least one that has attempted it before.
So, do your due diligence and make sure there’s healthy competition geared towards solving the same problem. Competition inspires commitment, drive and completion.
Solid Concept And Idea
The reality is that some projects are just at the idea or beginning stages, and the ICO founders depend on the funds raised from the ICO to initiate and fund the project.
The problem with this is, most newbie investors don’t know how to differentiate a concrete idea from a fluke. Here’s a tip on how to do that: look around and see if someone else is trying to do the same thing, and see how theirs is different from your intended ICO.
As a rule, be extremely cautious about pioneering solutions or tech. While they can be quite profitable if you get in on the ground floor, they are also possible investment black holes.
If you’ll be investing in any tech like that, make sure that you have all the information necessary to make a very informed decision.
Transparency And Verifiability
So many ICOs are lacking in this one characteristic. Little wonder almost all of them are scams and fraudulent schemes.
Many of these have websites that tell you what they want to do, but little or nothing about the person(s) spearheading the initiative, their teams, how they intend to utilize your funds and so much more.
There’s little or no transparency about them and they are also difficult to verify. So, do make sure to check for transparency indicators like the name(s) of the founders, team members, experience and so on.
Also, go check their profile on ICO ratings sites, look for expert opinions, possible whitelisting status and KYC approval.
Team Experience And Pedigree
Who is running the ICO? Who are on the team? What’s their experience or pedigree? How many successful projects have they run? How much industry experience do they have? These are just some of the questions that should be answered on the ICO site.
Please note that some scammers are now using the names and pictures of people with pedigree on their sites and claiming they’re on their team.
So, endeavor to reach out to those “team members” successfully to verify the authenticity of the website’s claims. ICOs are likely to yield higher returns on investment if the teams running them are experienced and qualified.
Legitimacy Of The ICO In Your Country
Do check for the ICO’s legitimacy in your country of residence and familiarize yourself with your country’s regulations regarding ICOs.
The SEC for instance, hasn’t really taken a stance on ICOs and cryptos as securities, and has warned Americans about the possible risks associated with crypto investing. China on the other hand, has placed a ban on ICOs, so their citizens who invest in them, do so at their own risk.
While it hasn’t placed a ban on all ICOs, it has red flagged a few. Go check for SEC releases, reports or notices about your intended ICO. If there’s any negative report, it might be best to skip it.
Detailed Roadmap And Whitepaper
Roadmaps and whitepapers give you an idea of the project’s timeline and information. Whitepapers provide in-depth information about the project, often containing exhaustive details about the project.
You should familiarize yourself with reading interpreting the information in the ICO’s whitepaper. This way, you’ll have a more solid grasp on the project and its potentials.
Possibility Of A Tangible Product/Service
Check to see if there’s already a working product or service. Many of these will probably be in the beta testing stage.
An ICO with a working product is always a safe investment and will guarantee returns on your investment. This is usually the best ICO to invest in as you know the company is serious and the team is committed to seeing the project to completion.
Don’ts Of ICO Investing
These are essentially, the opposite of everything we listed above. But, if you want specifics, the following tips should help:
Inadequate Information And Lack Of Substance
This is the first red flag. Many scam ICOs tend to overhype their projects –that’s if they even exist in the first place- without telling you exactly what it is and what it hopes to achieve.
So, take your time to read the website and see what solution they intend to provide. As a rule, avoid ICOs that sound like they want to do everything. This indicates a lack of direction or project priority.
You want a project that clearly outlines its goals, solutions, projected growth, clear milestones and an indication of what they intend to achieve in the future. Their projects must be tangible and relatable.
Any project that’s outlandish or containing so much fluff should be ignored completely. Those tend to be scams.
Promise Of ROI In A Short Period
ICOs are meant to fund projects, many of which are at best, in their infancy or beta testing phases. This means investing in them should be done with the intention that returns will be a medium to long term thing.
So, if you find ICOs promising quick returns, chances are it is a fraudulent scheme designed to enrich the founders alone. Walk away and forget about it.
Of course, this is not to say that it can’t make you money in a short while, but that should be more of a ripple effect –probably due to market factors or something- and should be a surprise when it happens, rather than it being a key part of the ICO founder(s) selling points.
Investor Checklist For Traders Conclusion
At the end of the day, there are just a handful of worthy ICOs in the market. And even then, they are risky investments at best.
The best thing to do is up the odds in your favor so that you are placed in a position where even if the token depreciates in value, you’re not worried because you know its long term value.
Just make sure that whatever ICO you invest in, meets the minimum established benchmarks. Good luck in your investing.