Are you smart enough to invest in an ICO?
Sincere questions you should answer before you do
The crypto financial ecosystem is here to stay. It has unleashed a wave of independence and freedom in the finance sector unlike anything the world has previously seen. Now the traditional bankers are starting to give it a chance in their words. First, they were all talking about blockchain while ignoring the cryptocurrencies and tokens. Now they’ve started saying maybe the whole ecosystem is for real. If you are reading this, it means you believe or you would like to believe if properly convinced.
One of the major challenges crypto has is fud. Traditionally, they call it misinformation or disinformation. Fud simply means fear, uncertainty and doubt. It basically refers to information that triggers any or all of these 3 states of mind in a person. Naturally, a lot of people in the crypto world are very susceptible to these because the industry is still in its infancy. This is why we have panic sell and fomo buy. Fomo means fear of missing out. All this shows that education is required to profitably navigate in the crypto space. There are no landmark institutions for that as of yet. This is why this is here.
Many are confused about crypto because they read everything their hands can find by everybody on the internet. And it creates so much confusion that they decide not to venture into crypto. However, a more sustainable model to this is to find thought leaders in the crypto space and listen to everything they’ve been saying.
ICOs became very popular in 2017. With the crypto market on an emphatic bull run, it was easy to sell ideas to gullible people. There were charts, graphs and estimations based on the then value of crypto. The problem of crypto (though an advantage to some) is that the value is not stable and the price is very volatile. So, bitcoin went down along with the other coins and the ICO projects struggled. It was a tough experience for many. However, if they actually evaluated the opportunity properly, they wouldn’t have the problem in the first place. Many just got too carried away by the idea of doubling their money or quadrupling their funds. It’s not that simple in the real world. The question is, are you smart enough to invest in an ICO? There are virtually no serious regulations to curb people from making dumb decisions in this area. And I believe there shouldn’t be. People need to be wise on their own. The ability of mitigate risk is so crucial here. So to help with any future decision to get involved in an ICO, here are some questions you should answer:
1. Do you have a sound investment portfolio already?
This is a serious question. If you don’t have, you probably should stay away. People often talk about investing what you can afford to lose, I don’t know about you but I don’t have any money I want to lose. The only way you can afford to lose money is if you have a solid portfolio already. This is why governments often give criteria that people must meet before they can invest in certain kinds of investments. The strength of the investment portfolio you have already is what determines how much you can invest in any ICO (regardless of how promising the project is).
2. Are you afraid of losing your investment?
If the answer to this question is yes, stay out of ICOs. This is not for the fainthearted. Wait till the token gets listed on an exchange. Another option here is to split your investments. This is something I did. If a bulk of your money is on one ICO project, you might just be harming your health and mental balance. Fud will always arise. Often times, it is not as bad as it first appears. But if all your money is in one venture, you may lose sleep and even go sick. So if you are fearful, stay away or diversify in such a way that your stake in each one of the ventures is not that significant. The pain of losing money is more intense than the thrill of making money. Be wise
3. Can you summarize the whitepaper on your own?
By getting involved in a lot of ICO groups, I discovered that many do not read the whitepaper before they invest. It’s so interesting! Some invest because they watched a YouTube video. Nothing bad in being introduced to a project by video or fancy ads but if that is what propelled your investment, you have not applied wisdom. Those videos and fancy ads should introduce the project to you. You are then supposed to take time to study the whitepaper. Not just to scan through it, but to pick the essence of it and be able to understand what it means for you as an investor. You don’t need to read everything in there, you just need to find the areas that concern you as an investor and be able to understand it. To understand it means you are able to summarize it in your own words. If the grey areas are quite significant, stay away. If you don’t get it, you can hang around but don’t invest until you get it. Never let anybody cajole you with fomo.
4. Have you interacted with the team?
This is crucial. You must be able to test the team your own way. Ask questions! This is not the same with calling the project a fraud and scam so that you can gain attention. Ask honest and intelligent questions. And you can only do this if you really went through the whitepaper. You don’t only listen to their answers to the questions, you also listen to how they answered. How they answer you goes a long way to show their competence, attitude, how they take the project and what you would expect from them going forward. If the answers are hinged (quite significantly) on hope, that is the signal to stay away. Certainty is key. If too much does not depend on the team, that is another signal too. Invest with people who want to make things happen, not people who are largely optimistic. They will most likely be nice and formal to you, but try and get them to be real and informal, it will reveal a lot.
5. Do you have a source of stable income that funds your lifestyle?
Don’t hope that the money you make from here will fund your lifestyle. It is when the investment delivers that you can scale up your lifestyle because of it. If you are in a position where you depend very dearly on the returns of your investment in an ICO, it’s better you stay away. Again, the pain of losing money trumps the thrill of making money. Be very wise.