How To Invest in ICOs for 2018 — Uncovering Signal From Noise

In this crazy cryptocurrency world, there are ways to get an even bigger return than just buying and holding bitcoin.

BTC itself may have gone from $900 to well over $10,000 in 2017, but 10x isn’t the biggest success of that year.

Look at Ethereum for example, which started the year below $10 and is now over $500 (as of the date of this publication.) That’s a 50x return.

The crazy thing is that Ethereum started out with an ICO price of around $0.30 back in 2014.

So in about two and a half years, ETH has given the investor 150,000% gains. That’s incredible. Now of course, Ethereum is the best performing ICO of all time. At least for now.

But, not every Initial Coin Offering is going to hit those kind of returns. Especially in that kind of timeline. However, there are plenty of well-thought-out projects coming out every single day which have the potential for good returns.

Are you going to get rich off a $500 investment? Perhaps not, but if it’s the right investment and you hold for the right period of time, you very much could achieve life changing results.

Many have already done so…

CHAPTER 1: BEST PERFORMING ICOs OF ALL TIME

Uncovering Signal From Noise

Below are the best performing ICOs of all time (Based on prices at Nov 30 2017.) These are the top 10 ICOs measured by current ROI (column G), and as you can see, they’re absolutely crazy results. Anything from 6,273% all the way up to 152,405% (at the time of writing). And if you look at the timelines as well, the earliest ICO was July 2014 and several members of this list only launched in 2017.

Veritaseum and Particl are less than a year old and have already given mind blowing returns. $100 invested in the Particl ICO in March would be worth almost $7,500 now. Imagine if you’d put $1,000 into the ICO.

The main takeaway is this:

Fantastic returns do not automatically correlate with a long term holding strategy. Large short term gains are very possible in the ICO market.

Be warned though, this is the best of the best. There are dozens of ICOs launching every single day, and many of them do not result in such mammoth gains. In fact, many of them are scams, and result in a total loss of funds.

Yes, that’s right — a total loss of funds.

Cryptocurrency is still a relatively unregulated space and there’s not a lot of safety in place to stop an unscrupulous group of people using an ICO to raise funds, then running off with your money.

Always, always do research into any project. Join our email list to see our own ICO reviews, and join other lists as well, because you shouldn’t rely on just one opinion. If you want to find the best ICOs to invest in, it takes some work. With such incredible returns on offer though, many people are willing to take the risk, and to invest the time into due diligence and research.

Even some of the more disappointing ICO’s can still double your money in a short period of time (less than a month). There aren’t many financial instruments that can give you those returns. Especially those with a solid community backing them.

Let’s dive into the background of ICOs and in particular, what they aren’t.

CHAPTER 2: WHAT IS AN ICO?

Let’s back up a little bit for those of you who aren’t fully sure of what an ICO is.

An ‘Initial Coin Offering’ (also called Initial Token Offering, Token Sale, or something similar), is essentially a fundraising practice where a new, or relatively new blockchain company raises funds in order to continue their project.

Some companies launch an ICO when they already have a working product and just need some more funds to grow it and market it, whereas other companies launch with nothing more than a sales page and a whitepaper outlining their idea.

With so many companies to choose from, it makes sense to avoid these whitepaper-only ICOs and pick someone who at least has a prototype, although we do discuss this in more detail here.

Many people look at this as evidence that crypto is in a bubble. In the traditional stock exchanges, a company will launch on the stock market with an IPO, or initial public offering. In order to have an IPO on a top exchange, a company is usually well established, with many years of history and documentable finances. There a lot less rules in the ‘over-the-counter’ exchanges, but it’s still more hoops when compared with the usual ICO offering.

The launch price of an IPO is determined by the companies expected value, based on their past earnings and prospects for growth.

With a cryptocurrency ICO though, the company rarely has any existing income, and yet they still raise millions of dollars. That’s pretty scary and doesn’t seem to make much sense on the face of it.

Don’t compare an ICO to an IPO. The stages of development for a company and the property you receive are completely different.

When a blockchain company launches its ICO, you should think of it more as a Kickstarter project. Instead of receiving shares in the company like you would with an IPO, you are receiving the token as a trading mechanism and not the underlying asset — which is the equity of the company. So just like Kickstarter projects, you’re getting a product rather than equity in the corporation. Although, some ICOs do offer profit sharing agreements.

Blockchain as a technology is still very much in its infancy, and when a company has an idea, and develops a prototype, but needs more money to hire better developers, marketing, and become a real company, an ICO is the best way for them to do it. It’s also an alternative investment for investors that want to benefit from the rapidly expanding crypto ecosystem. And perhaps quick gains.

Of course, you still have to keep your investing hat on and investigate into whether that company is legit, they have the right product/market fit, are gaining traction, and have a foreseeable chance of achieving their goals.

CHAPTER 3: HOW DOES AN ICO WORK?

Every token sale has slightly different logistics, but the general process for creating an ICO campaign looks like this:

• An upcoming company will announce its token sale and create a whitepaper explaining their project and goals
• That said company will create a token native to their company (more on this later.)
• Investors will pay Bitcoin, Ethereum, or Neo (depending on the blockchain being used) and receive tokens in exchange.
• As the company grows and its token grows in demand and value, investors can sell those tokens on exchanges for a profit, or in some cases hold them for a yield.

This is a bit of a simplification of the process, but it should help you understand why a company might do an ICO and how you may benefit from it.

Let’s look at tokens in more details now.

ICO Token Types — What’s The Point?

A lot of people will look at the economics of a company’s crowdsale (often called ‘Tokenomics’ — get it?) as one of the most important factors in their investment decision.

An element of those economics is what the actual purpose of the token is. Is the token just created as an excuse to have an ICO? Or is there real purpose and need for the company to have its own native token?

Here are the most common types of crypto tokens. These apply whether you are investing in the ICO stage, or later, once a company is more established:

• Utility Tokens
• Currency Tokens
• Asset Tokens
• Equity Tokens
• Reward Tokens

It’s important to understand the different token types, because this will help you understand which ICOs are worth investing in and which aren’t. Ultimately your decision on investing in an ICO isn’t just going to be based on the token type, but you’ve got to at least understand how they work.

1. Utility Tokens

A utility token allows you to ‘do something’. For example, in order to use the Ethereum blockchain, you need to use Ether tokens to pay for that thing (Let’s say you want to create a Smart Contract on Ethereum, you need to pay with Ether. You also need to use Ether to interact with that contract).

Essentially a utility token is like an access token. In order to use that businesses platform/service/whatever, you need to use their token.

Binance exchange has a good example of a utility token too. If you want to use their exchange, you need to pay fees, and by using their native $BNB token, you get 50% off the fees.

When investing in a utility token, you’re assuming that many more people will want to interact with that company in the future. Which will drive up demand for the token, and thus, increase its value.

2. Currency Tokens

Bitcoin is a currency token, it acts like money. Currency tokens are pretty easy to understand, because we’re all familiar with money already. Some of the more popular currency tokens out there are Bitcoin and its variants (Bitcoin Cash for example), Dash, and Litecoin.

3. Asset Tokens

These tokens represent claims on an underlying asset. Asset-backed tokens are very similar to the situation when the US Dollar was still pegged to gold. You’d essentially give your bank some gold, the bank would issue an IOU (“I Owe You”) and that would essentially be your token.

When you’re ready, you head back to the bank with the “IOU” (aka token) and they’d give you back the gold (physical asset.) This works with any type of physical asset and also works with anyone holding the IOU. For example, if the token was actually reliant on Gold as the physical asset, then you could send your token to a friend and they could use that token at the bank to redeem gold. The term token is exactly the same as the IOU in this case.

4. Equity Tokens

A lot of ICO’s try to avoid being classed as an equity token, because then the SEC can become involved. This is another reason many ICO’s are off-limits to US Citizens. Although, equity tokens are also probably the best investments, if you can get them.

An equity token represents ownership of the company (including it’s debt), much like a traditional stock does. When you own an equity token, you may have some say in how the project runs, and possibly receive dividends or other yield as well. As the SEC has mentioned that these types of tokens are subject to federal securities regulation, it’s best not to contribute to any ICOs that issue an equity token as most of these companies will not have the support to battle federal securities law.

5. Reward Tokens

These are tokens that are given as a reward. For example, if you were to use a platform like Steemit, and you wrote an article which many people loved, you could be awarded Steem tokens in exchange for your good work.

We can’t tell you which token type to invest in, because 1) We’re not financial advisors and 2) Every project is different. The type of token they use won’t make or break the success of the project. It’s just important for you to understand where your money is going and how these fundraises are setup.

By now, you’re more educated on cryptocurrency than the vast majority of the population. Many people will think “Why does the world need more than 1 cryptocurrency? Isn’t Bitcoin enough?”

Well perhaps, but remember, most of these should be thought of as tokens, rather than currencies. Most tokens provided in ICOs are not meant to be “money”.

CHAPTER 4: HOW TO INVEST IN AN ICO

CONDUCTING DUE DILIGENCE

As with any other investment, due diligence is a crucial part of the cryptocurrency landscape. It helps you in making your first decision to buy (or not buy) and will also help you in the decision process for selling too.

ICOs are very volatile and therefore are inherently riskier than your average financial instrument, however, with volatility comes much higher chances of big returns. And I think that’s the main reason why we’re attracted to these projects.

We’ve invested into plenty of ICOs at this point and would like to share with you some basic, but important, criteria when assessing whether and project is worth investing into. Again, this is simply our own criteria that we use so please do your own due diligence into these factors as well.

1. The Team

Not all businesses require a great team to be successful. Plenty of good businesses simply survive for a very long time with flatlined revenue. An ICO provides an influx of funds to a startup company (most often) and usually a brand new company doesn’t know what to do with this “cash” injection. Therefore the importance of synergies, diverse skills, and experience are an important part of the assessment of every ICO.

Here are the criteria’s we ask ourselves, when assessing an ICO team:

• Past experience (successful crypto related experience is a bonus)
• The size of the organizational chart (does it justify this large of an investment?)
• Social profiles (LinkedIn often, but any others apply.)
• History (When did they purchase the domain name? Have they worked together previously?)

QUICK TIP: Run a reverse image search on Google Images of team members LinkedIn photos to find all their social profiles quickly.

2. Their Prototype

The whole point of an ICO is to fund a project’s development and there is no better use case for these funds than to increase the value of an existing project. The long-term success of a token increases 10-fold if the project is already available to the public or is in a private beta. The further into the development phase, the better.

Here are the criteria we look for in an ICO’s prototype:

• Product Traction (How far along is the product for going-to-market? Are there users already testing in the sandbox?)
• Roadmap (What will be the use of funds? Is there a clear roadmap that makes sense? The roadmap doesn’t have to satisfy an investor but, rather the end user of the project.)
• Marketing (“Build it and they will come” is not the right approach. Does the team have any marketing skills and is it overly weighted on the tech side or the marketing side?)

3. Details & Structure of the Token Sale

The devils in the details right? For the most part, ICOs are structured with more or less that same set of variables. There will be more variables in the future as different blockchain technologies develop but for now, here’s what we look at:

• Participation Size (Is there a hard cap on the amount of investment the company will take? What countries can participate? What’s the percentage of tokens available to investors?)
• Bonuses (Be aware that ICOs including outrageous bonuses of 20%+ would not be considered good ICOs, can cause oversupply as well)
• Use Case of the Token (Where does the token fit into the business model? Is it a currency? Used as a utility? A token with more use cases and wide adoption is more valuable)

Quote taken from NewsBTC.com

4. The Community

Here’s a simple anecdote:

“Behind every good token is a thriving community.”

If your goal is to sell Bitcoin at $50,000 USD then you need a “community” of investors at the $49,000 mark to believe it’s going much further than $50K. These are the two main criteria we use in assessing an ICOs community:

• Size of Followers (Are there Telegram or Slack channels for this ICO? Often times the number of people simply following an ICO means a larger reaction to small news. Most people are naturally optimistic though and therefore long.)
• Market Sentiment (Is the conversation around the ICO positive or negative? Are any trusted crypto leaders/gurus convincingly rosy about its prospects?)

Telegram is fantastic for discovering news quickly but there are a lot of “talkers” in there. Be warned that this is primal ground for you to participate in pump and dumps. You can make money with pump and dumps but you can also lose your shirt.

6. The BIG Idea

Finally, the big question: Is this project sensible? There are literally dozens of ICOs coming out each week and they probably won’t stop. The question is when the next Etherium will be. If you’re reading this then you are probably already convinced that cryptocurrencies are here to stay, but will the current top 10 market cap coins continue to be the best options?

Consider this when analyzing a projects main idea:

• Is There a Need (Does this project have the right product/market fit? Is it too far away or just in time?)
• Is There Competition (Is another competitor needed? Would a cash injection be used responsibly to help them surpass the competition?)
• Is Blockchain Needed (Is the use of Ethereum’s smart contract necessary to complete this raise? Does this project encourage wider adoption of the blockchain technology?)

How To Contribute To An ICO

Now that you have a better understanding of why a company might hold an initial coin offering and the characteristics that a token would provide. How do you actually get yourself into an ICO? The process varies slightly, but the general steps follow these lines:

• You sign up for a whitelist if there is one (basically just enter your email address)
• You may also be asked to pass Anti Money Laundering (AML) and Know Your Customer (KYC) procedures, which can involve uploading a copy of your passport or driving license and is usually pretty seamless.
• When the crowdsale or pre-sale opens, you send your contribution to a specific smart-contract address, and if successful, you will receive your tokens back either immediately, or at a designated time.
• You store your tokens in a wallet (again, more on this later), and when they are added to an exchange, you can either sell them or keep on holding in your wallet.

The vast majority of ICOs right now are on the Ethereum blockchain, which means you need to contribute with Ether, rather than bitcoin or USD.

For example, let’s say you want to invest $500 USD into an ICO based on the Ethereum blockchain (“Ether” for short.)

1) The first thing you’ll do is get some Ether. We recommend Coinbase or Bitpanda if you’re new to buying cryptocurrency, as they are the most beginner friendly. We also recommend you buy Ether in advance, because some ICO crowd sales sell out quickly and you don’t want to be stuck waiting for your money to convert on Coinbase.

2) Once you have your Ether, you’ll need to transfer it to a wallet. Keeping a small amount of crypto funds on an exchange is ok, but when contributing to an ICO you need to send from a personal wallet address rather than an exchange, because they take a longer time to verify transactions and you will likely miss out.

For wallets, an ICO may recommend a specific wallet of its own, but most of them will suggest you use Myetherwallet.com or MetaMask (which works like a Chrome extension). Personally we’ve used MetaMask for all but one of our ICO contributions and have had no issues with it.

Note: Usually part of the whitelisting procedure in step 1 requires you to confirm your Ethereum contribution address, so it makes sense to get all of this set up before you try to join an ICO. I suggest buying Bitcoin as well. Essentially, you want to have Bitcoin as your main crypto while the rest of the cryptocurrency dust settles. Everyone should have a solid proportion of Bitcoin because this will be the first purchase for 99.99% of new entrants into the crypto space.

Sidenote on Addresses & Wallets

A lot of people (us included!) get confused when first starting to invest in crypto. Simple things like addresses and wallets and blockchains can be pretty confusing. So it makes sense that we should include a few quick points on how wallets and addresses work together in the ICO process:

Blockchains use addresses (lines of code basically) as a way of passing tokens back and forth between individuals. On the Ethereum blockchain for example, every address begins with 0x.

So person A could have the following address: 0x3BfCD7623*redacted*CC3615A24Ba99e3bE36

And person B could have the following address: 0xf53e5b4cc2*redacted*e84b052f05489c0396ab

If person A wanted to send coins/tokens to person B, they would use a wallet’s “send” feature to move coins from their own address to the other person’s address.

Technically, you’re not actually sending the coins anywhere, and they’re not being stored anywhere either. You’re just telling the blockchain “Person B now owns these tokens instead of Person A”.

In order for you to access an address and be able to tell it to send tokens, you need a private key. Every address has its own public key, and corresponding private key, that only the address owner should know. If you lose your private key, you lose access to that address, and your coins.

This is why many people use wallets (pieces of software or hardware that essentially store your private keys in case you forget them).

When you “store coins on a wallet”, you’re actually just storing the private keys, or passwords, on the wallet. The coins are on the blockchain. This means if you switch computers or whatever, but still have the passwords for your wallet (or better yet, still have your private keys), you can always access your coins. Also, you can use pretty much any wallet to access almost any address.

The most secure hardware wallet we’ve used is the Ledger Nano S.

Quick Tip: Many beginners will install a second wallet, get a new address to go with it, and then transfer the coins from wallet address A to wallet address B, when in fact, they could have just restored their original address on the new wallet and saved the hassle and fee of a transfer. Just make sure to double check you’re sending the coins to the right address…

What To Do With Your Tokens & How To View Them

Depending on the ICO, you’ll either get your tokens straight away, or you’ll have to wait until they’re released. This usually happens after the ICO period ends. Basically, companies don’t want their tokens to be tradable on exchanges until everyone has contributed, which is the fairest way to do it for everyone.

Some ICO’s will therefore hold off on delivering you the tokens until the crowdsale period has ended, and others will give you your tokens immediately, but have them programmed to be not transferrable until after a certain period. It’s effectively the same thing, and most good ICO’s will communicate this well in advance.

Once you’ve got them, tokens need to be manually added to a wallet for them to show up, even if you have them straight away. For example, let’s say you invested in an ICO and received your tokens immediately. According to the blockchain and the smart contract (the piece of code which controls receiving and distributing the tokens), the tokens will have been assigned to your Ether address, but in order to view them, you’ll need to use MyEtherWallet or MetaMask.

So to give more light on this, let’s say you contributed 2 Ethereum in an ICO called “AwesomeCoin”, and those 2 ETH were worth 2,000 AwesomeCoin tokens. Those tokens may have the ticker “AWE”.

Now, when your 2 ethereum arrived at the contribution address, a smart contract (basically a piece of code) will have registered your contribution, and sent 2,000 AWE tokens back to your address. Congratulations, you now own some new tokens. Hopefully, over time those 2,000 AWE tokens will appreciate in price and will be worth significantly more than 2 Ethereum, or whatever USD price you paid for them.

To view those tokens in your wallet, you can use the “Add token” function and fill out the information for your token. Usually you just need to add the smart contract address of the ICO you contributed to. Remember though, you already own those tokens as soon as you receive them, whether you “add” them to your wallet or not. The wallet is just your way of viewing and interacting with the tokens.

The best way to find out the smart contract address is the following:

1) Go to etherscan.io and enter your Ethereum address (the one you used to send Ether for the ICO).

2) You should see a completed transaction in the list. Click on the transaction hash.

3) Copy the smart contract address from here:

4) Now, what some people do is add their tokens to MetaMask at this point. This is a Chrome based wallet (which is more secure than it sounds). However, you can also use something else, like Myetherwallet.com to view your tokens. In fact, you don’t have to do this step if you don’t want to. Your tokens are always going to be yours, whether you have them added to a wallet or not. Wallets are just for viewing balances and interacting with tokens. If you do want to add your tokens to a wallet, here’s how it looks in MetaMask:

For most ICO’s, as soon as you put the right contract address in the first box, the Token Symbol and Decimals of Precision will automatically fill in, and you can just hit “Add”. After that, you’ll see your tokens showing up in MetaMask.

Some ICO’s may vary from this, but we find that once you understand the basics of how most of them work, you can usually figure out the others work fairly easily. Most worthwhile ICO’s will have good communication and an FAQ page about how to see the tokens as well.

Remember, this example is just for Ethereum based ERC-20 tokens. Bitcoin based ones (of which there aren’t that many) and Neo based ones will have a different process, but along the same lines.

Where To Store Them & How To Sell Them

In terms of storage, you can leave them in MetaMask if you want. Remember, it doesn’t really matter WHERE you store them, because it’s your blockchain address that really stores them, not the actual wallet. You can send them to an address that you have with a more secure wallet if you wish, but you may not be able to interact with the tokens there.

For example, if you find Jaxx is a more secure wallet than MetaMask, you can send the tokens to your Jaxx address, but you won’t be able to use Jaxx itself to have the tokens show up.

Either way, in the next step we’ll show you how to send tokens, whether that’s to another address for storage, or to an exchange to sell them.

Using MyEtherWallet to Send Tokens

Whether you use MyEtherWallet for storing your tokens or not is irrelevant at this point, but in order to send them somewhere, you’ll want to use the following site:

1) Go to Myetherwallet.com and click the “Send tokens” tab. Note, a lot of fake/phishing sites exist that pretend to be myetherwallet, so make sure you visit the right site. The correct URL will be [my ether wallet dot com.]

MyEtherWallet (MEW) have got plenty of warnings about phishing sites now.

2) You then need to choose the wallet you’re using, or you can use a private key or mnemonic phrase (like a backup phrase for your wallet) to access that wallet. Even if you’re not sure which wallet you’re using, you can interact with MEW by using the private key for your 0x address.

3) On the next page, you enter the address you want to send the tokens to, and then from the dropdown menu, change ETH to whichever token symbol you want to send (or hit “load tokens” if nothing else is on the dropdown menu).

4) You can leave Gas Price alone 99% of the time, that’s just the fee you’re paying to the miner to process the transaction.

After that, hit the ‘Generate Transaction’ button and you’re good to go.

Where Can You Sell The ICO Tokens? Or Buy Them?

This one varies greatly, but the majority of tokens are listed on EtherDelta first. This is a decentralized exchange so it’s usually the first place you can buy/sell new tokens once they’re available. Again, it varies greatly when exactly a token becomes transferrable.

The easiest way we’ve found to use EtherDelta is via MetaMask. It’s another reason why we want to stick with this one.

Next, the token will list on one of the more mainstream exchanges like Bittrex, Binance, or HitBTC. Often, but not always, there is a spike in price once a token lists on one of these bigger, more liquid exchanges, so it’s worth holding onto them until then, unless you see a huge spike when they first list on EtherDelta.

Some tokens will go anywhere from 2–10x just on EtherDelta alone, in which case it’s good to sell some to take profits off the table early. This isn’t trading advice by any means though, we’re just giving an example of what we’ve seen success in from the past.

Another thing you can do at this point is BUY tokens. Maybe you missed out on the ICO because you were from an exempt country, or you didn’t get your funds ready in time, or it was just super popular and you missed out.

There is still an opportunity to profit from the token as soon as they list, or even later on once the project has demonstrated some traction. Many investors only invest post-EtherDelta. So don’t think you’ve lost your chance if you didn’t get in during the ICO.

We didn’t buy any Neo until it was $6.50 but we still made huge profit when it soared up to its current price of $35.

CONCLUSION: SHOULD YOU INVEST IN ICOs?

ICOs can be a highly profitable way to make money with cryptocurrency, even more so than Bitcoin. With that in mind, they’re also a lot more volatile and riskier than Bitcoin (which is itself pretty volatile and risky).

Learn how to conduct thorough due diligence and pick projects with the highest chance of success. The most successful ICOs came along with outstanding communities as well.

If you don’t have the time or experience to do this, then we have the following suggestions:

• Just stick with Bitcoin, Ethereum, or other “safe” altcoin’s like Neo, Dash, or another top 10 coin.
• Subscribe to our email list and read our ICO reviews as they come out. We’re not going to tell you how to invest, but we’ll help you start the research.
• You can also get our free guide on 9 steps to evaluating any ICO.

The voice of the Cryptosis.io team. Any number of different people take turns writing our content, but we all share the same goals and activities.

Originally published at cryptosis.io.