A Must Read Before Investing In Any ICO

If you’re reading this, you’ve certainly heard about the insane returns investors generated from ICO’s in 2017 and wonder whether it’s true or a fairy tale. Yes, people indeed made tons of money.

This doesn’t mean Initial Coin Offerings are old news, not at all. In fact, the total amount blockchain projects raised in 2017 was $6.5 Billion compared to nearly $11 Billion by June 2018.

However, the funds raised through Initial Coin Offerings and the returns made by people that invested in those projects are two completely different figures.

Don’t get me wrong, those who know how to do a proper analysis are still making money and below we’ll go into some details on how you can do that as well.

I’m sure everyone with the intention to put money into the market is doing some research prior investing in any ICO and of course as with anything else that is trending there is plenty of information available on the web.

What most people would do is:

Then you get tons of articles and videos explaining the basics, ensuring you that by following these simple steps you will not only minimize your risk, but most probably make some money.

9 out of 10 articles will offer the same advice:

• Look at the team — Do they have any previous experience with crypto or blockchain projects?
• Read the whitepaper — Is everything explained properly, makes sense and seems legit?
• Check the social media — Do they have any followers, is there any engagement/ discussions?

While the above is something that you should look at indeed, it doesn’t really give you any information on whether the project is a scam, or the team knows how to execute it if they raise the money. What I’m saying is that everyone launching an ICO is aware of those advices for investors and of course makes their project to look legit.

1. They pay for blockchain experienced advisers and display them within the team
2. They pay to 3rd parties to write fancy documentation which will give you confidence
3. They do bounty campaigns and offer tokens in exchange for comments, likes and shares

Risk comes from not knowing what you’re doing!

Warren Buffett

How to do a proper analysis in 5 steps before investing in ICO

1. Real Use Case

With the enormous amount of value exchanging hands over the blockchain and the prospect of getting “free” money, it’s not hard to imagine why many scammers, online money makers and existing companies try to identify any possible reason to launch an ICO campaign.

The first thing you try to find is a legitimate reason for having a token. Meaning if what they claim their token will do can be done without it, the future isn’t bright. Even with the best marketing during the ICO, after the sale is over useless tokens are simply useless.

2. Token Distribution

Is the number of tokens offered to the public more than 51% of the total amount minted? Is there a maximum one can invest? If not, this isn’t a decentralized token economy. It means that the founders or few whales hold the biggest bags of coins/tokens and can easily manipulate the price.

This is how most Pump ‘N Dumps are happening and trust me it is very frustrating If you have some of those tokens and patiently waited for the end of the ICO hoping to make some profit. When the founders are associated with whales the last thing they do is protect retail investor’s interests.

3. Use of Funds

Do they describe how the funds will be used in detail? I haven’t seen an ICO aiming for less than few million dollars and dare to believe that even teams behind the most successful campaigns are great marketers, but not very experienced in finance management and business execution.

So, besides the use of funds section in the white paper you should check the team (not the advisors) for someone with finance background as well as someone with experience in the field the project is focusing after the ICO ends.

4. Price Appreciation

Even if you analyzed everything the project has experienced team, real use case for their token and shows what they will do with your money there is one thing that is probably the most important from investors point of view. What will drive a price appreciation?

The price always depends on demand and supply. So first you should look at the total supply (if any) — the lesser the better. Although in most cases this is based on assumptions you need to check on the token circulation or how many tokens will be used in the ecosystem if the project succeeds.

5. Liquidity

Of course, like with any other asset the one factor as important as the value is liquidity. If the token is already being utilized major exchanges will certainly accept it. Once exposed to millions of crypto traders its price will significantly increase and you can sell it in few seconds.

It is better to hold a token for 12–18 months until it is utilized and get listed on major exchanges with big trading volume, rather than buy a token that will get listed on “Micky Mouse” exchange right after the end of the ICO.

Remember — ICO projects are not lottery tickets!

Don’t count on luck, investing isn’t gambling. Don’t take anybody’s word as financial advice or invest in something just because there is hype around it. Don’t put your money into ICO that you haven’t personally and properly researched.

Thank you for reading this and good luck with your investments!

If you want to learn more about the Initial Coin Offerings as an investment opportunity here is a good read for you: Can This New Approach Win Blockchain Contributors’​ Trust Back?