8 Facts Associated with Initial Coin Offering Investment
Initial Coin Offerings (ICOs) are a relatively novel form of fundraising involving the exchange of future digital assets for liquid crypto coins with an immediate value. One of the highlights of this type of fundraiser is that it is open for big and small investors alike.
Regardless of the amount of financial input in any given project, the hope for stakeholders is that token prices will increase and earn them a profit either within a short period of time or in the long run.
You might be experiencing a mixture of excitement and caution at the prospect of dipping your toe in this form of investment.
But how can you tell whether buying an ICO token will turn out to be a wise undertaking?
Take a look at some key aspects that you need to evaluate before investing in an Initial Coin Offering:
1. Project Team
For any investor considering an opportunity in a crypto startup, the team is one of the most important criteria. Check the track record of everyone especially the development team as well as the board of advisors.
Find out whether the information posted on the project website matches their LinkedIn profiles. Search their names on Google and see what comes up.
Do they have any previous experience in the industry and how have their past projects performed?
2. Value Proposition
Another crucial consideration is whether the project in question is set to solve a genuine market problem.
And if it is, how big is its potential market?
You might have to carry out a lot of research into the field especially if you do not have sufficient experience in it.
Find out the potential level of demand for the proposed product or service. If at all it is to be a good investment, it has to address a real market need and attract the interest of a good number of people for it to be successful.
3. Project Stage
Different startups opt to raise capital while at different stages of project development. While some are merely ideas, others are at the white paper stage and yet others have product prototypes. In many cases, projects with a proof of concept are more likely to succeed than those with nothing to show for their ideas.
For projects which have no working prototypes or demo products, always remember to read through the whitepaper carefully. Check how well it is structured and whether the technology behind the concept is well mapped out.
4. Blockchain and Token Necessity
The launch of an Initial Coin Offering requires the creation of a new token and blockchain development.
But what exactly is the purpose of this new token?
If bitcoin, ethereum or any other existing token can serve the token’s role then it is unnecessary. Companies that launch unnecessary blockchain platforms have a high likelihood of failure and should be avoided.
5. Media and Crypto Community Channels
One of the key differentiating factors between traditional funding methods and ICOs is community opinion. Numerous crypto community forums are dedicated to discussing the authenticity and viability of new blockchain projects.
Take your time to get a feel of the general opinion towards any project of interest. Moreover, reputable projects will often have wide communities of supporters on social media platforms such as Reddit, Twitter and Telegram.
Some forums like Blockchain Whispers go beyond the opinion of the public to offer specific insights into blockchain projects. The forum has professional traders and investors on board providing crypto trading signals based on market research and analysis.
6. Token Distribution
The level of balance in token allocation is another reliable way to tell the potential of a project. A good team will often link the distribution of funding to their roadmap as every milestone logically requires some level of financial input.
Greedy teams, on the other hand, allocate a high percentage of tokens to themselves.
And this will often make it impossible to achieve funding objectives. Balanced distribution ensures that the team has enough incentive to give the task their best while not compromising the development process.
7. Open vs. Hard Cap
Understanding the difference between these terms is another helpful aspect to help you evaluate the viability of a project. An open cap ICO allows members of the public to contribute unlimited funds to the project.
While this may seem advantageous, it also means that there will eventually be a high number of tokens in circulation. The higher the token supply, the lower the demand, which will translate to lower gains for investors.
Hard caps limit the amount of investment and subsequently the number of tokens being issued. However, you need to strike a balance in this so that you do not end up being the only investor in a project.
For your investment to be viable, you want it to get listed on the best cryptocurrency exchange platforms. The best cryptocurrency exchange sites have little interest in projects that don’t raise much and this will make it hard to sell the tokens in the future.
8. Type of Token and Applicable Regulations
Initial coin offering investment offers different types of tokens depending on their role on the platform in question. Thus, you need to find out the purpose of the token and the value you will gain from owning it. More importantly, different regulations apply to the different types of tokens in the market.
Establish whether national or international regulations have a bearing on the project. In countries which are only starting to formulate crypto regulations, there is no telling whether the project will progress as planned.
All said, Initial Coin Offerings and digital currencies in general offer undeniably high investment potential. If you are thinking of making a move into the sector, exercising the right amount of caution and being conscious of inherent risks will protect your portfolio.
You might also consider the use of reliable crypto trading signals such as those available on Blockchain Whispers to assist in guiding your investment decisions.
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DisclaimerThe writer’s views are expressed as a personal opinion and are for information purposes only. It is not intended to be investment advice. Seek a duly licensed professional for investment advice.
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