ICO Investing

What is an ICO and how to pick one?

What is an ICO?

An ICO is the releasing of a new cryptocurrency/token in exchange for other cryptocurrency or fiat. The purpose of a token release is to generate funds for a project or business venture wherein the token has a purpose.

ICO tokens are fast becoming the new IPO’s both with the public and larger investor groups. With an ICO costs are far less than IPO’s but there are fewer regulations in the ICO market, this has caused many people to be scammed by “companies” pretending to have a great idea or product, or as we have recently seen, people fronting as another ICO as in the case of Telegram.

ICO’s are high risk, high reward investments which have the potential to give you a far higher return than an IPO if proper research is done.

Ethereum (ETH) was initially offered at 0.0005 BTC and a year later it was valued at 0.012 BTC, which is a massive profit of around 25,000% and when you account for the rise in Bitcoin’s value during that time, your profits become exponentially higher.

Not all ICO’s will be like Ethereum’s as far as rewards go, but a successful ICO from pre-sale to public launch could easily yield over 100% depending on the demand for the coin, as well as whether marketing was done well by the company or organization in question.

If the coin hits its hard cap, it’s usually a pretty good sign. It’s good to note that usually, the earlier you can get in, the better your rewards are as many ICO’s offer presale or staged bonuses. Usually, this is presented as a “discount” however often the amount of discount is credited to your new wallet in the form of additional coins. The best time to enter an ICO is during presale but it is often the most difficult time to enter as there are often minimum purchase prices which are larger than other stages of the offering, meaning you need to invest far larger amounts during the presale.

How to choose an ICO

There are a few steps you generally need to take before deciding on buying into an ICO. It’s not advisable to cut any corners here as you could end up losing money in a bad way.

Research the Company, the Development Team as well as the Business Team

This is the most important step in the process, and can usually be done by looking at your social media sites as well as Google.

Google their names, and have a look at their online presence on sites like LinkedIn, Twitter, YouTube, Steemit, Medium, and Quora.

The first red flag is usually if you Google a team member and find nothing, or if they are rather inactive, or only recently became active online. If this happens for much of the team, you’re probably dealing with a scam.

Look at how active the team is in the country they’re from, and a bonus is if the team is distributed across multiple countries or continents, you really do want the team to be able to market their product to as many people as possible, and you want them to be actively doing so.

Find out whether any of the team has previously been involved in the blockchain and technology industry in the past? Has the team has presented anywhere, have they made public appearances, done demos etc. This also adds to the legitimacy of the ICO. Be careful if you find a lot of “ambassadors” on YouTube or social media attempting to hype the ICO, as we saw with Bitconnect, it’s possible for scammers to motivate influencers with fast money to generate hype based on quick profits as opposed to technology. The CEO or face of the company does not need to be a blockchain expert or even have had anything to do with the technology, what you are looking for here is a CEO with a track record that is verifiable. You also want to ensure that this CEO has not had any issues with previous businesses.

Find out if the business that is behind the ICO is an already existing business and if they have any other products on offer. A good track record is important, and you are generally safer investing in a coin created by a company that is already profitable. These companies generally release a token that can be used on their current systems, for example, Kodak’s KODACCoin.

Read the Whitepaper

This is boring. This is tedious. This is complicated. This is critical.

Unlike Bitcoin, Ethereum, Dash or Monero which currently focus on the cryptocurrency as a currency only and not in conjunction with a product or service, ICO’s have a team with a set purpose and goal. The whitepaper not only details the technology but also the intentions of the business and its strategy, it should clearly explain the purpose of the business, the platform, and the currency’s use. The whitepaper will detail other things like whether the coins are capped at a certain number, if they are distributing coins to their team and if the company is holding onto coins as a reserve for a specific purpose (see Ripple). Any questions that you have should be answered within these pages, and if they aren’t then the paper is not complete. A great example is the Bitcoin whitepaper, in 8 pages (the perhaps fictional) Satoshi Nakamoto solves all the problems he presented in the first bit of the paper. While it can be a complicated paper to read, he answers all the problems very effectively.

Look for spelling errors. While a few spelling and grammatical errors are acceptable due to many of these teams not being native English speakers, if the whole paper and the website looks like it was stuck into Google Translate, it probably was, and could potentially be another red flag. To be fair though, if spelling errors are the only red flag, it’s not something to be too worried about. I have seen many legitimate non-blockchain businesses that have very large bank balances and customer bases with shoddy spelling and grammar on their sites.

Get to know the Developers

Step one was to find out if the developers are real, this step is more about getting to know them and what they’re about. These guys and girls are arguably more important than the CEO, Business or Sales managers. The developers are the backbone of the platform and therefore the backbone of the token that you plan on purchasing. You don’t want a team that is hidden away, you want the business to be advertising their team, their achievements, and expertise in the relevant areas.

What kind of play are you going to make?

What I mean by this is: Do you plan on making a short-term play, or a long-term one? Will you buy in at pre-sale and exit at the public sale? Will you exit after 6 months?  A year? Or do you plan on holding this coin for longer for future use or as a value investment?

Knowing the Dev team isn’t important for a short-term play, but if you’re looking at holding it for 6 months or longer, you do want to know your team and their product. If you are planning on a longer-term hold, you might want to consider taking off profits once you hit a certain percentage. If you want to totally maximize your profits, however, you might want to hold on until the coin is listed on an exchange, as once that happens, it is generally followed by a jump in price.

Check the Roadmap

I can’t stress this enough. Some businesses might be two years or more away from releasing their product, do you want to be tied down to an investment for that long? The roadmap is usually quite easy to read. Look at the goals the company has set, and consider whether you think they are achievable or not. Some ICO’s will have a working product at launch, and some might be launching their ICO’s to put the finishing touches on their products. It would be unreasonable to expect their product to be finished within 3 months of the ICO, but equally a two-year timeline is a very dangerous one to gamble with. Markets change and there is always a very real possibility that a competitor could knock out a working product faster than the ICO in question.

Join their social media

This is the last little test, and it’s basically there for you to establish whether the company responds to the public and whether the company communicates and updates the public on its progress. Usually, you will find a Twitter profile, Telegram Channel, Discord Channel, a Subreddit or at very least a Facebook page. Join these groups and gauge the interaction and communication of the company.

Conclusion

With cryptocurrencies being as profitable as they can be, there are many scams out there designed to take advantage of people who aren’t actively researching things that they buy into. It’s imperative that you do your due diligence and make a call that you are comfortable with, as well as one that you can afford to lose out on. Never invest beyond your means, and never invest on emotion alone.

Tiaan Wolmarans is a cryptocurrency investor and trader, airplane pilot, musician, and writer.

Disclaimer: The information presented by Tiaan is for informational purposes only. It should not be considered legal or financial advice. Tiaan is not a financial adviser. You should consult with a financial professional to determine what may be best for your individual needs.

Tiaan does not make any guarantees or other promises as to any results that may be obtained from using his content. No one should make any investment decision without first consulting his or her own financial adviser and conducting his or her own research and due diligence.

Please always only invest within your means and do so responsibly. If you have any questions feel free to contact him via the social media buttons below.

Tiaan Wolmarans
Tiaan Wolmarans is a cryptocurrency investor and trader, airplane pilot, musician, and writer. Disclaimer: The information presented by Tiaan is for informational purposes only. It should not be considered legal or financial advice. Tiaan is not a financial adviser. You should consult with a financial professional to determine what may be best for your individual needs. Tiaan does not make any guarantees or other promises as to any results that may be obtained from using his content. No one should make any investment decision without first consulting his or her own financial adviser and conducting his or her own research and due diligence. Please always only invest within your means and do so responsibly. If you have any questions feel free to contact him via the social media buttons below.