The Basics of ICO Investing: A Brief Reminder to Those Who are New to the Game
The ICO market has been heating up for a little less than a year now, but it truly has turned into a new wave of technology. The amount of wealth being created is insane, and it can be difficult to keep up with the rate of change that is occurring within the industry. It is like the tech boom of the early 2000’s all over again, and this is your chance to mint a lot of money.
If you’re looking to put some money into an ICO, the first step is tracking down the right one for you. There are lots of websites devoted to the different ICOs that are currently underway or planned to be soon, but CoinSchedule is my personal favourite right now. You can find out about new ICOs here, and then the hard part begins.
You need to perform your own due diligence to figure out if the ICO is right for you. You can look through forums and Reddit, but gaining an understanding of the fundamentals of the company (team, product, market size) is the only way to avoid losing all your money in the long-run.
Telegram is a great chat platform for connecting with others, and there are a lot of expert level people who are willing to share tons of information about cryptocurrencies and ICOs, so I would recommend you check out that tool.
The Due Dilligence Process
There are a few key insights you need to apply in your investing process. First, the cryptocurrency community is segmented into different use cases, and there likely to be only one successful project for each use case. So before you do any investing in a certain project, it is time to do an analysis of the competitive landscape. You don’t want to be betting against yourself by putting money in multiple projects in the same sector, so it is likely you’ll want to choose only the project you think is most likely to succeed.
To learn more about the project, most companies have Telegram channels where you can observe the community and get and idea of what the developers are like and where the project is heading. In general, Telegram is an invaluable research tool.
Finally, you’ll want to examine the amount of supply the company is keeping to itself. You want the founders to have “skin in the game” still, but you also don’t want them to have such a high proportion of coins on hand that they can gain a profit and then start to de-risk by selling off their holdings.
Going Through with the Purchase
Assuming you’ve finally selected a coin you would like to purchase, it’s time to execute. Most coins are supported by Ethereum, so you’ll need to purchase some Ether and move it to a wallet that will support a variety of coins. Currently, I use MyEtherWallet.
Purchasing the coin is actually much simpler than you would think. All you need to do is get the public address of the ICO and send them the amount of Ether you want to invest. They will send you your tokens when the ICO closes, and you have successfully participated in your first ICO.
Know Your Client (KYC) rules are for keeping track of your identity and following the security regulations of your jurisdiction. In the beginning, it was rare a company would follow them, but now that regulators are cracking down, you will likely have to provide all your identification information in order to participate.
If you do want to sell your tokens at any point, you can use an exchange like Binance that allows trading of a wide variety of tokens.
Watch for Pump n’ Dumps
As long as there have been equity investments, there have been pump n’ dump schemes. Aptly named “shitcoins”, there are numerous projects that ICO without a product or even a hope of developing them. The lack of regulations is making this possible, and this is exactly why you need to do your due diligence.
An often pointed out criticism of ICOs is that no one on the team has built anything yet. There is the feel of a group of people seeing an opportunity and jumping on it because there is a chance of high profits, rather than them being able to contribute a lot to the space. So as you look out for “shitcoins”, you should be especially aware of projects that talk about the amount of money they’ve raised, rather than what they’ve built.
Understanding the Risk
The first thing that everyone should know about ICOs is that they are still unregulated. Where IPOs receive intense regulatory scrutiny, ICOs are mostly self-regulated at the moment. Considering the fact that most of these companies are coming from people with little or no track record, it is imperative you are careful about where you invest your money.
Yes, it is a good thing that you can now make large asymmetric bets that used to be regulated out of your reach, but research is always the answer. For example, if you have a token for a company that doesn’t have a use case aside from funding the company, it won’t serve as a good store of value. With the implementation of the lightning network, cross-chain atomic swaps will eliminate the need to hold these tokens, and their value will trend to zero. Understanding future shifts like this is the key to a long-lasting investing career.
Featured image courtesy of Shutterstock.