If the right choices are made (at the right time) ICOs can be very profitable because investors can get a piece of the pie ahead of other market participants. However, closing wrongly can easily lead to a complete loss of that investment. This can happen for many reasons: failure of the coin’s technology to materialize, scaling problems, or simply the collapse of a coin’s value post-release, if, for example, it is determined that the coin has no long-term viability.
In relation, it’s important to remember that the majority of new coins do not perform with significant value increase over a period of a couple years (as successful coins do). The reality is, the majority of coins fail. Strategic thinking and asset judgment is needed in order to decrease chances of entering into a weak ICO. And although no one can bring the risk of failure to zero, you can greatly decrease this risk by following a plan.
So, to help you find an ICO worthy of your money, below is a checklist. Utilize it before you make any decisions about where to put your money:
- Read what other investors, users, and columnists are saying about the ICO in question and don’t forget to look at associated forums on Reddit or bitcointalk.
- Ask yourself, does it appear that the promises of the ICO will be able to be executed? For example, on its website are there videos, images, press releases, or seminars with which you can use to gauge the professionalism of the organization offering the ICO? Remember you are not in it alone, you want other market participants to get involved in the ICO, too, if you want to sell the coin for profit.
- With regards to development, make sure that your ICO has a transparent team behind it, as coins developed and released by hidden developers are far more likely to be scam and/or eventually lose their overall value. Further, look for teams that have had successful projects in the past. It’s also important to see if the ICO has an associated prototype, because if it seems like developers are not putting much work into a coin, that could be a bad sign for it’s sustainability.
- Consider the long-term application for the coin in question. Just releasing currency for the sake of it doesn’t cut it – the ICO has to provide some real use in order for the market to see long term value in it.
- Understand market capitalization, which, simply, is gauged by looking for obvious extremes in its perceived value versus its real-world value. If market capitalization is far above the actual market, it will likely lead to strong price drop, or price correction, stabilizing around the coins intrinsic value. Up to date information on market capitalization can be found on websites like https://coinmarketcap.com/; or, after an ICO has finished, on the coins website.
- A final thing to consider is mining. When mining seems to be the prominent selling point of the ICO, it often means that developers do not have any other significant features with which to sell the ICO or draw in investors. Remember that mining is only a process that helps functionality of currency – it is not related to its actual use.