In a rapidly maturing cryptocurrency ecosystem, there are fewer and fewer places to chase the high volatility that characterized the market just last year. One of the best places is in the ICO space, which is made up of altcoins that were, and are still being released on blockchain.
These alternative cryptocurrency investments are like penny stocks, with miniscule per-coin values compared to giants like Bitcoin and Ethereum, and are therefore more sensitive to volume and swings in sentiment.
What Is An ICO?
An ICO, or Initial Coin Offering, represents a crowd-funding technique used by blockchain-based startups to raise capital to support their project. Already this technique has been employed by companies to raise billions of dollars worth of capital. However, despite similarities to the idea of an IPO or Initial Public Offering of company stock, ICOs are very different.
For one, coins or tokens sold during an ICO do not represent equity in the company and do not give holders any voting rights unlike a stock traded on Nasdaq or the New York Stock Exchange.
Instead, tokens or coins represent opportunities for investors to speculate on the utility of an ICO project. Because they are used to pay for a product or service and do not represent equity, companies that raise funds via an initial coin offering have no obligations to token investors.
Nonetheless, for companies interested in fundraising this is a valuable technique because it allows them to raise capital without having to sell pieces of the business to outside investors.
What ICO Components Should I Look For?
Investors are all searching to identify the next Dash, Ethereum, or Monero, all of which were once sold via ICO and are now valuable coins with their own markets. Impressive returns are possible by claiming a spot as an early contributor, but not all ICOs are unicorns.
For traders who want to multiply and diversify their blockchain-based portfolios, it’s possible to buy recently post-ICO altcoins on some of the major crypto-to-crypto exchanges like Binance and Bittrex. In a bullish market, altcoins are known to skyrocket past the percentage gains of their larger peers, especially if the project is perceived as successful.
Perception is a delicate formula when it comes to ICOs, but the market generally responds well to ICOs that contain all the following components.
1. ICO Team
It’s important to make sure that the ICO you’re investing in isn’t a haphazard assembly of nonprofessionals, who think launching an ICO means they’re printing money. Now that the industry has matured and merged into the traditional finance sphere, it’s more crucial than ever to have a large team, with experts in every role at the top of the pyramid.
It’s possible for a single great programmer to create an ICO, but not probable. Mass developer talent needs to be complemented with regulatory expertise, a CEO with leadership experience, economists, lawyers, bankers, advisors with strong experience and more. The team must demonstrate the seriousness of the venture.
2. ICO Economics
Creating a token economy is important for an ICO because it illustrates the coin’s purpose, gives it value, and outlines the real mathematics behind how investors are protected. All serious ICOs publish some key figures like:
- the amount of capital they want to raise
- the number of tokens being minted
- the proportions being sold and kept (and why)
- the “burning” of unsold tokens to limit supply
- bonus exchange rates for early contributions
These numbers and facts will inform you and other investors about the supply and demand for the token. It’s important that this information be readily available and favorable as well. An ICO shouldn’t seek more capital than necessary or keep more tokens than is reasonable.
3. ICO Whitepaper
If there was one place where it was easiest to determine the potential of any ICO, it’s the whitepaper. It’s hard to fake a whitepaper, which should ideally be at least 10 pages long and thoroughly explain the concept underpinning the ICO, from top to bottom.
It’s essentially the longer version of a one-pager that explains to investors what the idea is and why it’s great. It should cover the problem facing their industry or market, the solution, ecosystem, road map, economics, marketing plan, and more.
Watch out for short, shallow whitepapers that aren’t supplemented with additional documentation. Spelling mistakes and even a lack of investment in charts and graphics indicate that an ICO wasn’t willing to put in minimal effort.
4. ICO Community
It makes sense that an ICO would want to build a community around itself, because decentralized networks and token economies are a product of user interest.
The most successful entities embarking on initial coin offerings spend as much on marketing and stirring the hype (in a healthy way) as they do on development and R&D. The initial size and momentum of a community is just as important to a young network as the technology that supports it.
The language that representatives use with the community is important to scrutinize. If you see them talking about the potential price of the token, it’s not a good sign. A healthy ICO, and one with real longevity, is more concerned with a sustainable ecosystem and a working product than their token’s market capitalization.
It’s good to see an ICO investing in a central hub for their community as well, such as a Telegram channel or subreddit. If their only social media presence is Twitter or Facebook, it appears halfhearted.
5. Built for Blockchain
Finally, though it’s probably the first thing you’ll look for, a project that is launching an ICO should require the blockchain to function. What’s the point of investing in a token that’s being sold to fund a new clothing brand, for example?
The best ideas to invest in were born after the invention of blockchain, because they couldn’t exist without it.