A Breakdown of the Important Factors to Consider When Evaluating a new ICO
For those just getting introduced to the world of cryptocurrencies, there’s one acronym that gets tossed around a lot: ICO. An acronym for “initial coin offerings,” ICO’s are fantastic opportunities for new investors to see substantial returns on their initial investment, but often times it can be difficult to sift through all the nonsense and find one worthwhile to invest in. If you want to know how to properly evaluate an ICO, keep reading below and we’ll break it down in plain English.
What’s the Plan?
One of the first things to look for when evaluating a solicited ICO is the plan for the product. You wouldn’t expect a sports team with no plan to destroy the competition in a game, would you? Likewise, the team behind an ICO should have a structured plan for the release of the coins and what platform/product they’re building. Is the project offering a new exchange? Is it going to work with any partners? Are they focused on decentralized applications (dApps) for a specific purpose? What does the roadmap look like? These are all important questions to ask when reading through a project’s white paper.
The Team: What We’re Looking For
Strong development team members with experience
Capable marketing team members to help bring project public
Legal advisors to aid in official release and dealing with regulatory bodies
Equally as important as the plan is the team involved. Who is running the project? Take a look at reputable names and what their positions are. Do the team members have previous experience in the industry? Does the project have a team of full-time developers working on the release and product or is it stagnant? On top of the technological side of things, who do they have working with the marketing and endorsing on the release?
The tech behind a new coin is quintessential, but the marketing and branding of that solid project are also crucial to the success. What we’re looking for here is a combination of fantastic developers, especially on the lookout for those with experience in blockchain tech or related FinTech projects, as well as a good marketing team in place to help go public and have great reception. A good example of this is the Telegram ICO which was recently announced; the Telegram team has a fantastic combination of the two important groups.
Additionally, it’s great if the project has celebrity endorsements since that goes hand-in-hand with the marketing side of things, but is that all they have? If someone can get Paris Hilton to post about their project on Twitter, then great, but is that the only thing the project has in terms of value? We’ll also be on the lookout for legal advisors since one of the problems plaguing the industry right now is the improper understanding and adherence to local laws and regulatory concerns with investing. The last thing you want is to invest a lot of Bitcoin or Ethereum into a project only to have it shut down and funds confiscated before the coin is released on an exchange.
As with all financial decisions, we’re going to crunch the numbers as well. Part of valuing a cryptocurrency will be dependent on basic economic observations such as the amount of the currency that will be circulated (just look at the difference in circulation totals between BTC and XRP for example), as well the initial offering price, what markets it will be exchanged on, and how much you have access too. If you do the math and still believe a coin is a bit overpriced, but you happen to get in early enough to receive a 50% coin bonus on the offering, then purchasing may still put you in the green come release time; all factors to consider.
While there are no ways to completely ensure you won’t be exit scammed in the “Wild West” of the unregulated crypto markets, there are some marketing tactics and other concerns that, historically, have shown to be prevalent among Ponzi schemes and other fraudulent projects.
Project Red Flags
Guarantees of daily returns on initial investments, especially high amounts, and especially on lending platforms
Claims of having a “proven algorithm” or “trading bot” that will make investors money by beating the market daily
Whitepapers with no names (privacy coins excluded), sources, or a roadmap
Aggressive marketing tactics and asking for confidential information
No real-world use case for blockchain technology
Empty or rarely updated project Github
Unbelievable promises of financial gain (there’s a reason it’s “unbelievable”)
Yes, it can seem like a lot to need to look out for, but the more you start evaluating different projects and ICO’s, the sooner you’ll get the hang of things. Along with the experience, you’ll begin to get a better understanding of what really makes a successful project and what does not. Follow the key points above, use them to create a checklist of your own, and you’ll be expertly rating ICO’s on your own in no time!