ICO’s have taken the crypto and investment worlds by storm. With the cryptocurrency market cap increasing from R1,6 trillion ($136 billion) on 1st December 2017 to over R6,7 trillion ($569 billion) at the time of writing, it’s safe to say that we are officially crossing the adoption curve chasm between ‘early adopters’ and ‘early majority’, like a rocket! By way of comparison, during the intervening period, the market cap peaked at over R9,8 trillion ($830 billion) which is larger than the estimated revenue of the global airline industry in 2018.
Disclaimer: This is not investment advice but reflects the opinion of the author. Do your own research before acting on any of the information provided in this article. Any form of investing including ICO’s and cryptocurrencies cannot guarantee any return and carries the risk of loss. As with any speculative investment, do not invest any capital which you cannot afford to lose.
Key to this massive influx of retail investor money is the success of Initial Coin Offerings (ICO’s). ICO’s are an opportunity for a Blockchain project to raise money, similar to crowdfunding, without having to stake a portion of their business in order to do so. They do this by releasing a new cryptocurrency or token that can be held by investors who are interested in the progression of the project.
The usefulness of an ICO is that it bypasses traditional methods of raising money (banks or venture capital), giving retail investors great opportunity to invest early, and developers an opportunity to save money and time to focus on developing their project. To say that ICO’s have been successful for both investors and Blockchain projects would be an immense understatement.
In 2016, ICO’s managed to raise an eye-watering $96 million (R1,2 billion), with some of the larger projects, such as $WAVES, a Blockchain infrastructure project that allows users to launch their own crypto tokens, raising over $16 million (R208 million).
Fast-forward to 2017, and ICO’s managed to raise a jaw-dropping, gut-busting, moon launching $3,7 BILLION (R48,1 billion). That is around 38 times the amount raised in 2016.
Cryptocurrency ICO Stats for 2017
Some of the most successful ICO’s in 2017 include Filecoin, $257 million (R3,3 billion), Tezos, $232 million (R3 billion), EOS, which raised $185 million (R2,4 billion), and is ongoing, and Bancor, $153 million (R1,9 billion). This simply represents the amount of money the project raised in its ICO to continue building the project.
You may be asking yourself: What if you, as an investor, had taken the plunge and decided to invest in one of these projects? If you had decided to invest in EOS during its ICO in June 2017, you would have received your EOS tokens for just 92 cents (R11.96). Today, they are trading at over $13 (R169); that is a return on investment of over 1,300% in just six months.
In 2018, I expect money to continue to flow into ICO’s, as retail and now institutional investors attempt to get a piece of the pie, chasing astronomical returns. It is important that as an investor, or potential investor in ICO’s, you understand the risks, do you own research, and do not take investment advice from anyone but yourself.
You can rest assured that people all across social media platforms will encourage you to invest in ‘the next big thing’ ICO that they have poured their life savings into on the advice of a friend or colleague. Do not invest in ICO’s without doing your own research.
While ICO’s have the potential to make you rich beyond your wildest dreams, they also have the potential to go bust before their token is publically traded. There have been numerous accounts in 2017 of projects disappearing from the face of the web after a successful ICO, running off with millions of dollars that people have invested. Remember, the cryptocurrency industry is still largely unregulated, which means that any money you lose because of a poor investment, lies squarely on your shoulders.
To help you navigate the wild west that is ICO investing, I have below detailed some things that you can do to stay ahead of the curve. First, you want to get an idea of the upcoming ICO’s. There are numerous websites that allow you to see what projects are in development.
Popular sites are:
These sites will help you keep up to date with the latest ICO’s, the progress of their token sales, and some even offer detailed ratings that break down what each individual project is hoping to achieve. Once you have chosen a project that you may want to invest in, it’s time to do some research.
An important thing to do before even considering any ICO investment: Read the whitepaper.
Every project should have a document, often called a ‘whitepaper’ that breaks down exactly what the project seeks to do, and how it will achieve it. When reading the whitepaper, you want to get a sense of a few things:
- What is the problem that the project hopes to solve, using blockchain technology?
- Typically, the most successful projects are those that seek to disrupt billion dollar industries through decentralisation. They are often first movers, with little to no competitors in the crypto arena.
- Does the token that you will receive once you invest actually have any utility?
- Remember, if the token has utility, you can expect there to be some demand once the project is up and running.
- Does the project have a roadmap for the short, medium and long-term?
- A realistic development roadmap is vital to the success of any blockchain project.
- How are the tokens going to be distributed, and how many will there be?
- As a rule of thumb, you want to steer clear of projects where tokens/coins are majority held by founders and advisors. This kind of centralised distribution can spell disaster for investors if founders decide to offload millions/billions of token. Remember, crypto is not regulated. Nothing stops founders from doing as they please.
- Who makes up the core team and advisors?
- Insight into the team can make or break for me. The team should have some kind of experience in the tech industry, with notable inclusions being former Google, Facebook or Myspace developers or project leads.
- You want to make sure that they aren’t going to run off with your money as soon as you invest.
While there are certainly many more points that could be added to the above, these are some of the most important questions that you must ask yourself before you consider putting your hard earned money into a company/project that, very often, has no proven track-record. Next, you want to try and assess public opinion, and the responsiveness of the core team on social media.
The boom of the crypto industry has brought along with its many innovations, but something that is often ignored by those that see the industry as a bubble is the fact that crypto assets have introduced a wave of transparency and accountability never before seen in any major industry. So much so that the success or failure of a project is often judged by how responsive the core team (incl. the CEO, lead developers etc.) are when communicating with potential investors.
What we are seeing here is a successful combination of finance, technology and social media that is unique to our time. Many of these projects have official communication channels through platforms such as Reddit, Telegram or Discord. Interrogate the team, and monitor how they respond to difficult questions from the community.
ICO’s are a potentially lucrative opportunity for innovative investors that are willing to add some risk to their crypto-asset investment portfolio. However, it is imperative that investors do their own research, and do not invest more money than they are willing to lose.
Be sure to use all the tools at your disposal, and invest wisely. What’s your opinion on ICO’s? Let me know in the comments below.