Our view on sound ICO investments
As Bitcoin recovers from a fall below $10,000 for the first time in months, many crypto investors will be looking at their options as they seek to mitigate the impact of volatility on their crypto portfolio. If ever there was a time to diversify your crypto assets, in search of security and greater stability, this is it.
According to Miko Matsumura, co-founder of the Evercoin Cryptocurrency Exchange, about 30 ICOs are launching every day, raising millions of dollars each, all of which is ostensibly intended to be used for the development of new blockchain-based businesses or to fund an unproven concept.
The problem for investors is that it isn’t easy to sort through 30 new opportunities per day and, even if you have the capacity, what exactly should you be looking for when deciding where to place your capital? After all, the world of ICOs has regularly been described as the ‘Wild West’ with investors having little to no security if things go wrong.
Remember, ICOs are businesses!
The single biggest thing to remember when assessing an ICO is that, regardless of whether the cryptocurrency you are buying is a security token (similar to buying a share in the company) or a utility token (a currency that can used to buy goods and services within a micro economy), you are buying into the success of a business.
Put simply, this means that you should assess an ICO in the same way as you would assess an investment within the mainstream economy.
Is the business market ready?
ICOs are a form of up front crowdfunding that enables organizations to gain liquidity in advance of creating the functioning business itself. There is a distinction to be made between those ICOs that are bringing tried and tested products and services to market versus those that are still an untested and unproven concept or idea.
Look for an ICO with a proven business model and a market with an appetite for their products and services. After all, would you ordinarily invest in a company that has no clear demand for its products?
Have questions? Ask the team!
Call, email, message, send a smoke signal. Reach out directly to the team in whatever way you can. Hear what they have to say. Get a sense for how much they can speak to their project. Do they know what they are talking about? Can they answer your questions? Any ICO that doesn’t provide you with a way to get in touch with them directly should be viewed with a healthy dose of skepticism and scrutiny.
What is the likely return on investment (ROI) and risk profile of an ICO?
There are no guarantees with any form of investment but having a clear understanding of the nature of the business you are planning to invest in and checking your own expectations of its performance against the firm’s own estimates, can give you a good idea of whether it’s likely to be successful, or not.
In our opinion, any legitimate and transparent ICO should publish its own performance projections and you should analyze those projections to decide whether they are realistic. If so, ask yourself whether you believe the management team has the experience, ability and tools to achieve those projections.
We all have different investment risk profiles and while some view the ICO market as potentially higher risk than more traditional investments, its important to remember that different businesses within the any ecosystem often carry different levels of risk and therefore expected performance.
Before investing, you must be comfortable with and understand all the risks that are involved with your investment. You should make sure that you’re happy with the risk profile of the company, the market in which they operate and the project they are offering, before making your investment.
Is the ICO underpinned by solid assets?
Property Coin, and a few other cryptocurrencies, are designed to facilitate the purchase of assets and the value of those assets will, hopefully, act as a stable base for the value of the coin.
While the majority of ICOs tend to focus on growing value through the success of the business, if the firm holds a portfolio of real assets, investors should enjoy a greater level of comfort that, should things go wrong, there will always be a real world value associated with their holdings as determined by the value of the assets owned by the coin holders.
In this way, asset-backed coins can potentially reduce the risk associated with wild market volatility seen in the crypto markets in recent.
Is the ICO working within a regulated environment?
As someone interested in cryptocurrencies, you’ve probably read many stories about calls for greater regulation and transparency as it relates to ICOs. We couldn’t agree more! The truth is that, as it stands now, the majority of ICOs don’t operate within any regulatory framework and, as such, are not required to offer the same level of transparency as traditional investment vehicles. Often this is the case because the issuer of such cryptocurrency has labeled their token a utility token rather than a security token in an effort to avoid traditional investment regulations.
However, there are some ICO teams that have worked hard to ensure their cryptocurrency is a well structured securities offering and, like the team at Property Coin, they have been keen to engage with regulators in order to offer a coin that attempts to fit within the existing regulatory framework.
Plenty of people have a negative view of regulation but the reality is that when you invest in a regulated business, you are buying into a company that is open, transparent and will attempt to operate within the framework of the existing regulatory environment.
How open and communicative is the ICO?
It’s very easy for a business to communicate extensively while it’s raising funds but will it continue to do so after the ICO?
It is not uncommon, in today’s ICO market, for a company to raise millions of dollars via their ICO then go completely silent for an extended period of time. Yes, most companies are probably hard at work building out what they said they were going to, but we think there should be a much higher level of accountability, communication and transparency before, during and after any ICO.
In the traditional structured products world, monthly, quarterly or annual reporting is typically provided, and often required. This is only beneficial to coin holders. We think that regular reporting (we plan to report monthly) should be the new standard for all ICOs, especially security tokens.
How solid is the team?
With over 1,000 ICOs issued in a year, there is no way to know all of the people behind any given investment opportunity. However, the ICO should offer plenty of information about the team that’s working to turn the opportunity into a market-leading business.
For those projects who do disclose their backgrounds and experience, ask yourself, does this team have the relevant experience in the industry/ business that they are launching? Have they run similar or competing businesses before? Have they worked together before?
When you see Property Coin’s Team biographies, you’ll notice that we have extensive experience in real estate investments, structured finance transactions, mortgage lending and technology creation. Further, you’ll notice that numerous members of the senior management team have worked together prior to Aperture/ Property Coin. We think this is a really important factor that is perhaps overlooked in the ICO space. Ability to execute is the key driver of success in any business and a team’s experience and ability to work together is fundamental to proper execution.
When it comes to investing in ICOs, the soundest advice is to act as though you are buying into a business, after all, in one way or another you actually are!
Do your due diligence, make sure the team has the expertise to deliver on their plan and most of all, make sure you understand the offering, how it works and the risks involved. Don’t be afraid to ask questions (more information is always better) and make sure you are comfortable with all the risks involved.
Happy investing!
