Today, I received the following question:
I see a lot of projects dumping right after ICO these days. Is it too late to invest in ICO’s?
I am not surprised to hear this question, and I understand how many people can think this way, especially in the current market state.
The Market for ICO’s today
We are in a bear market, enthusiasm for new projects is low, and only the most viable projects survives the FUD. In the last few months, we have seen hundreds of ICO’s fail miserably to gain traction post-ICO, efficiently decreasing their value by 90-99% from the ICO price.
Investing in ICO’s in this market without doing proper research is a deathtrap.
While the market cap of cryptocurrency has deteriorated constantly since the January crash, the number of ambitious ICO projects have been on the way up.
Earlier, investing in ICO projects was easier, because there was a limited number of Initial Coin Offerings. Now, there are hundreds, and a lot of the projects have the same goals, so finding the right one to invest in is becoming increasingly difficult.
Is it too late to invest in ICO’s?
No. It is not too late, but ICO’s are appearing at an exponentially growing rate, and the number of scams and unviable projects is growing with it as well.
The cryptocurrency market is currently in a bearish sentiment. In 2017, we had the ICO craze, where people saw ICO’s as the best way for a quick trade.
Now it’s the other way around. Most ICO projects are now down an average of 90% from the original ICO price when they hit exchanges.
It is not too late to invest in ICO’s though, but it is important to do thorough research before investing.
Here are 6 key points you should evaluate before investing in any ICO:
1. Idea – Is it viable?
Is the project creating something that is needed, that people are actually going to utilize?
Read the whitepaper, check out if any research has been done on the market, competition and how to roadmap looks.
Read the whitepaper and do some research on the market the project is targeting. Ask yourself the following questions:
- Some markets are very hard to penetrate, e.g. Social media. Does the team have what it takes to penetrate it? Does it offer something unique that is better than what’s being offered today?
- What is the project trying to fix/improve? Is the whitepaper able to explain clearly how they can solve this problem?
- Can you understand the whitepaper? A lot of whitepapers are filled with technical jargon that is hard to understand for the average investor. If you cannot understand how the product works, you should probably not invest.
- Remember that most whitepapers are exaggerating, trying to prove to you why their product is going to solve all the problems in the niche. Is the solution realistic and achieveable?
2. Analyze the team
A lot of ICO’s are blatant scams. They modify an existing idea with some exciting keywords and paste some pictures of some random people on the website, stating that this is their team. Be sure that the team members are real!
Some warning signs:
- Linkedin profiles are new
This might be a sign that the team member is fake, as everyone can create a new Linkedin profile with a random picture and name. It should be noted though, that in some cases the teams Linkedin profiles are new because Linkedin is not widely used in the countries (e.g. Russia).
- Team members have not stated their positions on the project on Linkedin.
This is a huge red flag. If the team memers have not stated their positions on Linkedin, that might be because the individuals does not want to be recognized for being part of the project, and might mean that they do not have faith in the project.
Aditionally, be sure to check out the team behind the project. Analyze their competency, and check out the past experience of the top positions.
Do they have any entrepreneurial experience? What positions have they worked on, and for which companies?
Most of this information can be found on the team members LinkedIn profiles.
Many ICO projects have been started by entrepreneurs with many unsuccessful ventures, or individuals that have no past entrepreneural experience. If the CEO already have started several crypto projects that have failed, them most likely this one will too!
3. Is the token needed?
Many ICO projects are creating projects that in fact, has no need for the token that is sold in the ICO. If the product/platform would work just as well without the token, why should one complicate the process by adding a new token to it? A lot of people would rather use the standard currencies like ETH/BTC than to use 1000 different tokens on each service.
Carefully consider the following:
- Is there a need for a token for this product/platform?
- Will there be demand for the tokens by the users?
- Is the token allocation fair?
4. Time perspective
When will the project release the product? Remember that in the crypto space, a lot can happen in a few months, and years are a long time in the crypto space, which is rapidly evolving, and staying relevant for long is close to impossible for a mediocre project. If the project needs a long time to release their product, be sure that it is unique enough that it will be able to penetrate the market when it launches. Consider if you believe that the current community will be able to stay this long, and if the budget has enough resources to attract enough users when the product is launched.
5. Set goals for your investment
Before buying your ICO tokens, be sure to set goals for your investment.
How long will you hold your investment? If the project is developing a product that is not finished until 2020, chances are likely that the project will not bring a lot of traction until the product is ready.
Do I sell if the token dumps on the market, or will I hold? If you choose the first one, set a stop-loss ready to limit your losses.
6. Consider to buy the token post-ICO
Most ICO projects dumps hard on the market these days, as the sentiment is negative and people are not that interested in investing in risky, new projects at this stage.
If you believe that the ICO token you want to invest in has a high chance of dumping when it hits the market, consider buying the tokens for cheap post-ICO. The sell pressure right after an ICO token hits the market is usually high, as there are in many cases a lot of bounty hunters who wants to sell their tokens.
No, it is not too late to invest in ICO projects.
We are still in a bearish market, but there are still being pushed out a rising number of ICO projects, and high competion combined with a rising number of scam ICO’s makes it harder to find profitable projects.
Investing in ICO’s is always a gamble, but by doing thourough research you efficiently decrease your chance of doing a bad investment.