By: Robert Masters, Managing Director, Blue Chip Vision
The number of initial coin offerings (ICOs) is growing every day. In fact, in 2018 alone, there have been 579 ICOs, raising an astounding $3.8 billion. While investing in an ICO can be very lucrative, there are important things every investor needs to be aware of and certain steps they should take before putting any money down. Cryptocurrency is still an unregulated space, and investors need to have a heightened sense of awareness into the ICO they are considering to ensure their capital is being used for the intended purpose.
If you are looking to get into this highly unpredictable class of investments, this piece will help highlight three things you should be aware of before investing.
The Caliber of the Team and Its Advisors
When you invest in an ICO, you’re investing in the development and longevity of a system or product associated with the token itself over an extended period of time. Because of this, it is important to ensure the team behind the ICO is of high caliber. Team members should have a proven history in the particular space or a proven verified set of skills and abilities. One way to ensure this is to check the credibility of their online presence and associations beyond social media channels. This can be done through reputable media channels, academic research papers, board memberships, presentations and affiliations, to name a few. The founding team needs to show its dedication to the space and demonstrate the desire to grow its funding, and ultimately its product. If they are not excited about the product, why should you be?
Not only should the team running the ICO be reputable, but also the advisers. These advisors should be actively involved in the project and have a long-term role or placement with the specific ICO. It is always smart to investigate the history of the advisers in the blockchain space, as their credibility is at stake when they agree to advise an ICO. Your confidence in investing should increase if their history and involvement in the space checks out. It also shows a higher chance of the team achieving what they set out to do, as having strong guidance from advisors is critical for the long-term success of any project.
How the ICO Aligns with Blockchain
Blockchain applications are transcending their traditional functionality in the finance sector and are rapidly springing up across a wide range of services and industries that we encounter in everyday life. This includes everything from digital identity and data storage to the way our devices communicate with each other through the Internet of Things. Yet, some areas are inherently more compatible to blockchain networks than others. With so many of our daily activities happening on the blockchain, a good investment will be one where there is a high relevance of the token offering to the industry it is hoping to support. For example, one key component of blockchain networks is that they remove the need for third-party intervention. This automation is useful for financial transactions but brings a dehumanizing quality with it.
Keep in mind, this may not be ideal for situations where the nuances of human decision making are needed, such as law enforcement, and thus could erode the potential success of an investment. On the other hand, blockchain networks provide the immutable ledger, which could be of great benefit to industries that require transparency.
Understanding the coupling of blockchain and the industry in which you are planning to invest will help you determine the longevity of the ICO, and in turn, help to confirm whether or not it is a good investment.
Evaluate the Token
The first question all investors should ask themselves before investing is what is the problem the ICO token itself is addressing? Be sure to look to see if there is a genuine need for the token in the long term, beyond that of the initial capital raising venture, and ensure it has validity within the system. Investors should always ensure that the token is built as part of, or on top of, the correct protocol for its use case and that its unique systems function will enhance the chances of longevity for the token, the system and the token’s adoption on global crypto exchanges.
Additionally, investors will want to understand the tokenomics and distribution of the token. The distribution should occur within a reasonable timeframe after the ICO’s conclusion. This is usually drawn out in the token’s white paper. Investors should also confirm that the percentage of the tokens held by the company and its team are not more than 35 percent, as this is a stronghold position. Not all projects will stick by these standards or even publish what the ownership percentages will be. However, there are forthcoming platforms, like Blue Chip Vision’s ICOMint, that come with the highest level of transparency to prevent dishonest companies from taking investors’ hard-earned cash for illegitimate ventures.
Investing in an ICO can be considered a win-win for entrepreneurs and investors alike, as entrepreneurs are able to raise the funds needed and investors are able to gain a substantial profit margin over a short period of time. However, this win-win situation isn’t always the case, which is why investors need to do their due diligence before deciding to invest. Once an ICO has been discovered, the team and advisors researched, and an understanding created of how it integrates with blockchain, investors can be more confident in what they’re investing in. These are the top three things all investors should know about ICOs.