I often get asked about current or upcoming ICOs and to give my opinion. I try, as best I can, to read as many of them as humanly possible and according to Tokens24, there are currently at least 250 ICOs in progress. I can’t help thinking though that 2017 was an easier year, as we saw hundreds of ICOs launch. Many made fortunes from investing relatively small amounts, and some lost a lot due to scams and Ponzi schemes.
Today we look at how to best mitigate the risks of ICO investments.
The Pros: The team is essential for a number of reasons. The first being the experience to execute the white paper. I look for people who have worked in fortune 500s/unicorns OR people who have already run the business (assuming it’s a pre-existing business). This gives me far greater confidence in my investment.
The Caveat: There is always a risk that if the team gains $$$ before delivery, they lose motivation. Which leads to point 2
Access to Funds
The Pros: If the team has a lock-away period where they can’t touch their coins/tokens for a specified period, this is an excellent sign. Shows they have a vested interest in making sure that the project holds its value until at least the time of their release.
The Caveat: If the team can get the $$$ early, they can dump on the market at any time. There have been many examples of this recently.
Does the Project Solve a Problem?
The Pros: If this is something that ACTUALLY solves a problem, then I am more than interested in looking further. If it is just a clone of many other projects, there is a far less chance of it surviving.
The Caveat: Some problems are so hard to solve that even a good team and a successful raise of funds, may either not secure the delivery OR it may take a long time to see results.
The Pros: This is a contentious one as it depends if it is transactional or not. What I am more concerned with is the distribution to the investors. If this isn’t right, you end up with Ripple or Veritasium type allocations where the team holds a significant %. So regardless of the number of tokens/coins, it is always better if the distribution is geared toward investors.
The Caveat: Not all tokens/coins are created equal. Circulation can be dependent on the token/coin use case.
The Raise Amount
The Pros: Obviously the more the project raises (against its target) the more likely it should be to fulfill its promises. It’s a good sign if the project is able to sell out.
The Caveat: Be warned of ICOs that have raised only a small amount. With today’s astronomical charges for getting a coin listed on some exchanges (up to a million on some), the lower raises will struggle to afford the fees to be listed on top exchanges.
Social Media Following
The Pros: A healthy social media following is a healthy sign. The more followers a project has, the better it is for its chances. Different channels have different popularity depending on the region. What’s even more important however is the way the team responds to their communities questions.
The Caveat: Crowds can quickly sour.
The Bonus Structure
The Pros: We all like to get in early and get rewarded for being bold in the beginning. It’s a reward for effort and also rewards for risk. We don’t know how much a project will raise in advance.
The Caveat: Be wary of projects that offer bigger bonuses or lopsided bonuses. These will tend to dump hard unless the bonus coins are locked away for a set period.
All in all, ICOs are high risk and high reward. This year I believe we will see more regulation come in and that’s a good thing. Until this time I think ICOs will remain a risky proposition. With the right research, we can mitigate our risks somewhat, in the pursuit of the next Neo or Ethereum.
2018 will remain a good year for ICOs, and the quality of the projects will undoubtedly be better overall. My money will be on privacy, platforms and also AI projects, being the biggest winners.
You can follow me on Twitter @bennydoda01 and I produce regular YouTube videos relating to the space as Bitcoin Benny.
This post is not financial advice and reflects the personal views of author. The author invests in digital assets and has positions in cryptocurrencies.
Disclaimer: This article should not be used as investment or financial trading advice. Please conduct careful due diligence before investing in any digital asset.