Initial coin offerings, or ICOs, are becoming increasingly popular, but would-be investors still have a lot of questions. In some ways, initial coin offerings are similar to the initial public offerings (IPOs) companies use to raise money and enter the stock market.
Like IPOs, ICOs can be extremely lucrative for investors. Ask anyone who invested money in the IPO of Microsoft, Amazon or Facebook how they did, and they will probably smile and tell you about their success. There have also been some success stories in the ICO world, but the history of the ICO is much shorter.
What to Look for in an ICO
If you are thinking about investing in an ICO, there are many things to look for. Initial coin offerings are used to raise money for new cryptocurrency ventures, and they give investors a chance to purchase a set number of coins at the initial, or base, price. If you know what to look for, you could make a lot of money in an ICO. If not, you risk losing all your money to an ill-conceived new offering, or even becoming the victim of a scam.
How Good is the Team?
If you were investing in a stock, you would look at the composition of the management team, and the same is true when investing in an ICO. The makeup of the team will be critical, and it could mean the difference between success and failure.
You will find to research the team carefully, examining their past successes and failures, looking at their level of experience in financial markets and finding out as much as you can about their history. You can use public resources like LinkedIn profiles, whitepapers, and even Facebook pages to do your homework, and the more homework you do, the better.
Research the Announcement
When a new initial coin offering (ICO) is announced, it will appear as a new thread on the BitcoinTalk.org website. BitcoinTalk is the largest forum for Bitcoin and other cryptocurrencies, and it is a good place to start your research.
You can ask questions about the proposed ICO on BitcoinTalk, chat with members of the management team and learn about the details of the offering and what you can expect. Be sure to look at previous questions and answers, but do not be afraid to open a new query of your own.
Check Out the Other Investors
If the initial coin offering (ICO) is a good one, there will probably be interest from venture capitalists and other professional investors. The presence of these experienced professionals is a good sign, and it can be a good reason to invest in the ICO.
You can find information about venture capitalist interest, the presence of other investors and additional information by going online. It is best to look for products that already have some working code since this proof of concept can help attract other investors and make your buy-in less risky.
Unlimited or Hard Cap
Bitcoin famously limits the number of coins, but not all cryptocurrencies have these hard caps. Before investing in an ICO, it is essential to determine if the proposed offering will be unlimited, or if it will have a hard cap in place.
Keep in mind that unlimited funding could dilute the value of your holding. As more coins enter the market, your tokens become less unique, and therefore less valuable.
Initial public offerings give members of the public the chance to get in on the ground floor of the next hot stock, and initial coin offerings do the same for the cryptocurrency market. Investing in an ICO can be a great way to get in early, but only if you know what to look for – and what to avoid.