ICO is an acronym for Initial Coin Offering.
What is an ICO? — Similar to an IPO (Initial Public Offering) in share trading, an ICO provides an opportunity for people to get involved and invest in a project before it hits exchanges.
It is a means of crowdfunding a project in the cryptocurrency space.
The ICO provides the project or start-up company a source of capital.
The benefits of an ICO include the avoidance of costs associated with regulatory compliance and intermediaries such as venture capitalists, banks and stock exchanges.
Regulation — Since their inception, many ICOs have been used for fraud as well as ‘pump and dump’ schemes. This is when a scammer aggressively markets (pumps) their project to raise its value; once it has hit the required price they will sell (dump) the coins for a large profit, potentially leaving innocent investors with a lower valued asset.
That being said, there many ICOs that show great potential and are completely above board. As with most things in life, the few spoil it for the majority.
The chance to be an early investor in the next Google, Facebook or Bitcoin is a real possibility if you invest in the right ICO.
A few countries have implemented regulation and, in some cases, complete bans of ICOs, restricting or preventing investors from taking part. In fact, regulation is an ever-evolving part of the cryptocurrency market, so it is advisable to research any current regulation before investing.
When you connect to any website, your ip address (or that of your Internet provider) is visible. If accessing from any of the banned countries, you will be unable to partake in an ICO.
Whilst some citizens from the ‘banned’ countries may be able to bypass their ip address by using VPNs, the problem arises when they are required to abide by the KYC (know your customer) rules of the ICO. KYC is a method which allows the investee to confirm the identity of the investor. For example, the investor is required to upload a photo of them holding their passport or driving license, and in some cases both to prove not only their identification, but also their country of residence.
Recently certain leading organizations such as Facebook, Twitter and Google have banned the promotion of ICOs due to the risks involved and the bad reputation caused by scammers. A knee jerk reaction in my view, but I can understand why.
Bonuses — Some ICOs offer large bonuses and other incentives to attract investors. For instance, you may get a percentage of coins/tokens for free with your initial investment. Whilst this encourages investors into an ICO, it presents risk as some investors may sell as soon as the coin or token is available on an exchange, leading to a price drop.
Whilst it is somewhat unfair to tar all ICOs with the same brush, some investors have changed strategies and moved away from the ICO market. Instead they opt to wait until a coin or token is live on an exchange and then purchase them; after the ICO.
ICOs are a great opportunity to get in on the next greatest technology if you are prepared to hold them and believe in the project.
Yes, there are many risks involved, but there are some great projects with immense potential. It is of paramount importance that you DYOR (do your own research) and take all promotional material with a pinch of salt.
If you firmly believe in a project and are prepared to wait, in some case years, the opportunities to make huge returns are there.
Never, make the mistake of investing on the back of someone else’s word, even if they are a famous YouTuber for example. Always, yes ALWAYS make up your own mind based on the information you have gathered for yourself.
As with all investments, there is risk. In the cryptocurrency space the risk is great, but the rewards can be greater.
Compared to other markets, cryptocurrency offers much greater gains (and losses) and ICOs play a key part in the market.
This is not financial advice. It is purely my own opinion. Remember any investment needs YOU to research it and YOU to decide how and what to invest in.