The Best ICO Investing Strategy — Flipping, Holding, A Bit Of Both?

Here at Cryptosis.io, we’ve been investing more and more in ICO’s, and where possible, pre-sales. We mentioned in our previous post how many coins we now own since getting our feet wet with Neo.

We’ve been fortunate enough to associate with some group-buys, and have managed to get a few bonuses as a result.

But that’s not the point of this post.

What we want to discuss today, is what IS actually the best way to handle all of these ICOs? What’s the best long-term, short-term, and flip or hold strategy?

Is there even a best way to do this?

It’s all speculation after all, which makes it a bit problematic to try and define what works best.

But that doesn’t mean it’s not a good idea to discuss the different options.

Every ICO is different. Different tokenomics, different use cases, even different types of token. So can you apply one rule to..rule them all?

Note: We are mostly talking about flipping and holding in this post, rather than trading. We’re not advanced enough to be interested in playing the trading game just yet, so we only want to discuss when you should exit, and how much for.

Also, free subscribers will be able to follow every move we make in the future.

We won’t cover the technical aspects on how to invest in ICOs in this post either.

Why It’s Important To Have A Strategy In Mind

One thing we’ve learned after participating in a dozen ICOs and presales, is that it’s important to have an exit strategy. In fact, the only thing more important is your ability to actually pick decent ICO’s in the first place.

Without a decent idea what you’re going to do, you could end up diluting your investments so much that they’re almost worthless.

Remember this much, to successfully invest in an ICO, you have to put a lot of effort into the initial research. You need to do a fair amount of reading, gauge market sentiment, figure out whether the hard cap is good or ridiculous, and also analyze the team.

You don’t want to do all that work only to mess up afterwards.

Some ICOs result in a 10x gain in a short period of time. While they might not all do that, you’re going to be looking at at least 2–5x for the majority of them..if you do your due diligence correctly.

But that’s just it though. Do you look for 5x? Do you exit at 2x? Do you hold on forever in the hope of 1,000x?

It really depends on so many different factors, and that’s what we’re going to discuss now.

First though, consider this;

Without the ability to take some early profits, and without a rule to rely on to keep you sane, it’s very easy to spend your time wondering “Should I hold or should I sell?” and end up regretting whatever decision you make.

You need a solid strategy to keep you from second guessing yourself. Even if it’s not the best strategy out there.

Of course it helps if it IS the best though.

A Discussion Of ICO Strategy — What Are The Options?

On the face of it, there seem to be two main camps when it comes to ICO investing:

And while some coins are clearly more suited to flipping and others to holding, we have discovered that very few ICOs can be considered 100% flip or 100% hold.

In fact, the best idea incorporates both.

You want to take some profits early (ideally enough to pay for the initial amount you put in),

And at the same time, you want to let some of them ride.

The question is, how much do you sell, how much do you keep, and when do you do this?

Our experiences so far

Considering we’ve been pretty much figuring it out as we go along, we’ve not done bad so far.

We put 3 ETH into 0x and cashed out about 30% of it later for 6 ETH, letting the rest ride.

We also put 5 ETH into Chainlink and cashed out about 90% later for 19 ETH.

For the other coins, we’re still waiting for the “right” time to cash out.

With 0x, we basically wanted to keep as many ZRX tokens as possible for the long-term, while also being able to say that no matter what happens, we’d doubled our money.

For Chainlink though, we felt it was a more long-term project and rather than waiting a long time to see any real gains, we wanted to take some profit to fuel future ICOs. From that 19 ETH we took, 12 of it has already gone into other ICOs.

There’s a clear difference between how we handled both of these ICOs, and part of that is because our strategy has changed between receiving our ZRX tokens and our LINK tokens. Part of it is also the fact we saw a huge initial jump in value of 0x and a slower build for LINK.

So let’s turn this into a thought exercise and discuss the pros and cons of taking as many profits as possible as fast as possible, vs letting as much as possible ride.

Quick Flip:

We define a quick flip as selling anywhere from 80–100% of your tokens within a short time of them being tradeable. As soon as they reach something like 3–5x, we’ll sell them and move on. We may not even wait for them to reach a major exchange. It depends on the token, what we think about its likely short term/long-term prospects, and how much it has risen.

Pros of a quick flip:

• Great to receive profits early (both for mindset and cashflow purposes)
• A lot of tokens make their biggest short-term gains right after the ICO
• Holding onto fewer tokens makes tracking a lot easier
• You can cycle the profits back into more ICOs and/or safer coins and have your investing pay for itself.
• Taking out the initial amount and letting the rest ride essentially gives you free tokens.
• Can buy back in later after the coin dips.

Cons of a quick flip:

• Can massively reduce the upside of your investments. Much harder to ride a mooning coin like we did with Neo.
• Can make you more likely to “gamble” on ICOs or skip due diligence.
• Psychologically can be stressful if you cash out shortly before the coin starts a huge run.

Hold:

On the other end of the scale is the hold (or hodl) strategy, whereby you try to invest in a coin when it is as cheap as possible, allowing you to have massive profits if it explodes in price. Imagine if we had put $7,000 into NEO back when it was at ICO price instead of when it was at $7? I don’t even want to calculate the gains we’d have.

Pros of holding:

• You don’t need to worry about trying to time your exit
• Some tokens will explode in value and you’ll make massive profit. Almost unlimited upside
• We’re still so early in the cryptocurrency game that virtually any investment in these initial stages could become huge later.

That said..

Cons of holding:

• There’s only so much FIAT you can put into ICOs before you need to realize some profit or stop investing in them
• On a long enough timeline, most tokens historically have lost value (See chart below)
• You either need to back a ton of different tokens in the hope one or two of them will moon, or you need to be very good at picking winners and only invest in a few.
• 80% of ICOs are likely to be duds in the long term.
• Holding too many coins can get confusing.

This chart shows that over a longer timeframe, most altcoins go down in price. Admittedly this chart is a few months old and mostly talks about earlier tokens, but it shows the potential risk with HODL altcoin strategy. (Source)

So looking at the above pros and cons, it looks pretty obvious that the best strategy is a hybrid. Take some profits, but also hold some coins.

The question is still then, how much?

If you compare our 0x trade with our link trade, you can see that with the former, we were leaning more towards a long-term hold and just taking some smaller profits in order to get cash off the table. No matter what happens to 0x now, we’ve doubled our money, but we still have a lot on the table if the token explodes in value later.

A lot of coins are going to take 1 year at least before they start to soar, since an ICO is so early in their lifespan. A lot of them don’t even have a final product yet.

So at the same time, that is even more reason to take profits early. With LINK, we feel it’s going to be a much longer timeframe before the project and token really ramps up in price, so we’re happy to take 4x profits here, and move the funds elsewhere. There will likely be a dip in LINK later if we want to buy back in, or we can jump in again in a year, when things are ready to take off again.

Yes, we may end up jumping in at a higher price, but we’ll have been able to pay for that higher price with the profits we’ve made in the meantime, by not having funds tied up for months.

With 0x, it’s been trading at a much lower price than we cashed out at for months, and we’re stuck in a kind of “Well, we can’t sell more now” limbo until the price rises again. This is what we wanted to avoid with Link.

Ironically, if we had cashed out a bigger portion of our 0x earlier, we could have bought most of it back for a fraction of the price, and still been in profit.

Oh well, you live and learn.

Three Strategies We Recommend

Based on our experiences with Link and 0x, and discussions we’ve had in our various trading groups, these are the different options we recommend you consider:

1.) Cash Out 50–70% After The Token Gains Around 5x

Some tokens are going to skyrocket to 10x right after they hit exchanges (like 0x did), but others are going to be much slower (like Kyber). With that in mind, cashing out 3–5x is a much more plausible scenario.

You can either cash out anywhere from 50–70% right away, or you could start by selling 40% at 3x, and selling more if the token keeps climbing in price. It depends how comfortable you are with tracking it and being disciplined.

It also depends very much on the token.

Here’s what someone in one of our FB groups had to say about this idea:

Another user followed that up with this reply:

So the answer really here from both people is that it depends on context and your own thoughts. Is the project and team great? Is there going to be a lot of FOMO from people who missed out at ICO? Could your money make better gains somewhere else? How many other projects are you involved in?

It all depends really.

Personally, we don’t yet expect ourselves to perfectly analyze a situation or project, and don’t expect to get the answer right every time. Some we will sell too soon (Link?) and some we won’t take enough profits fast enough (0x?). At the end of the day, profit is never a bad thing though.

With this strategy, if you can average 4x from your investments, and can cycle profits back into more investments, you’re going to make some big gains quickly, and will probably still have free tokens that you can forget about as well.

2.) Hold As Many As Possible, But Take Profits Early Too

While this variation isn’t a huge difference to the strategy above in execution, it’s definitely a different mindset. With this strategy, you’re not really looking at an ICO as an opportunity to pick up quick 3–10x profits, but more of an opportunity to get future projects that are going to turn into huge gains down the road.

Getting in so early means that you can get huge, even life-changing, profits without putting a large amount in. Even $500 can turn into something special with the right project.

The problem with this strategy, as mentioned earlier, is that you really need to pick wisely. Unless you have a lot of money to invest, you’ll run out quite quickly, and will have to hope you’ve picked some winners. You may not see profits for 1–2 years either.

To make it more sustainable then, you should try to take some profits while leaving as many tokens in your wallet as possible.

For example, let’s say you invest 3 ETH in the project, and later it goes up 5x. Rather than selling everything for 15 ETH, you would just sell 3–6 ETH and keep the rest. This allows you to keep funding more ICOs, while keeping your upside as wide as possible.

The best type of project for this strategy is most likely a protocol layer, or something that others can build on top of, like 0x, NEO, Ethereum etc.

This was also where we initially started out, but we’ve since moved onto the strategy below.

Note: Even if you did sell a lot of your coins after an initial gain, you can still get back in later once the project has more traction or you have more faith in the project. It’s not a case of hold or nothing.

3.) Hold As Little As Possible And Use ICOs For Your Main Profit

This is the opposite end of the spectrum to the above strategy, and is based on using ICOs to make the majority of your gains. It’s definitely the case that if you pick them correctly, then investing in an ICO (or even a pre-sale with a bonus) can be all you need to do to record good gains.

It’s not unrealistic to expect an average of 3–5x per month if you invest wisely, which is ridiculous when you think about it.

You could invest 20 ETH per month in a few ICOs, and come away with 40–80 ETH in profit. With that, you could still take half of that profit and invest it in safer coins or some of your previous favorite ICO projects.

Even if you can’t get 3–5x, it’s still a decent gain.

The downside of course is that you need to keep researching new coins and keep investing, and you limit your upside. You’re not going to follow a coin to the moon if you sell at the earliest opportunity (unless you buy back in later).

Another reason we like this strategy, which is perhaps the most important for some people: It reduces your risk of being hit by a bubble. If you’re only making short-term trades and then taking profits, you’re not going to be hit so hard if/when the crypto bubble bursts.

Assuming of course that a.) There is a bubble and b.) You’ve cashed out your profits into FIAT.

Which Is For You?

In all honesty, there might not be a single strategy above which is going to work every single time. As shown in the screenshots, you may want to adjust your strategy depending on the project, your enthusiasm, and all the other aforementioned factors.

Some tokens you may never want to sell, and others you may barely want to hold onto.

What’s important though, and the whole purpose of this post, is that you understand the pros and cons of each strategy, and how to interpret the different situations as they develop. Thinking about things on a higher level like this is the first step to becoming a better investor.

You may find you evolve your strategy as your own journey develops, which is what we have been doing.

Remember, here at Cryptosis.io we will share the investments we’ve made and why we made them, so be sure to subscribe to keep up to date with our latest movements and findings.

Originally published at cryptosis.io on October 7, 2017.