ICO has definitely become a buzzword, creating the enigmatic realm of wealth and profit. Record-breaking ICOs such as Tezos that raised a staggering $200 million have demonstrated ICO’s immense crowdfunding capabilities. This has made them extremely seductive, opening floodgates for startups to fund their ventures. ICO’s unregulated nature has, however, attracted a lot of scam projects that has seen several heedless investors lose millions of dollars. Evaluating an ICO is not an easy task; you need to invest a significant amount of time and effort to get a grasp of the project’s aim, how it solves an existing problem and its future growth potential. In today’s article we will have a loot at some important aspects of safe ICO’s investment.
The SEC has released a warning list of fraud signals which are useful in weeding out the disreputable ICOs:
1. “Guaranteed” high-investment returns. There is no such thing as guaranteed high-investment returns. Be wary of anyone who promises that you will receive a high rate of return on your investment, with little or no risk.
2. Unsolicited offers. An unsolicited sales pitch may be part of a fraudulent investment scheme. Exercise extreme caution if you receive an unsolicited communication—meaning you didn’t ask for it and don’t know the sender—about an investment opportunity.
3. Sounds too good to be true. If the investment sounds too good to be true, it probably is. Remember that investments providing higher returns typically involve more risk.
4. Pressure to buy right now. Fraudsters may try to create a false sense of urgency to get in on the investment. Take your time researching an investment opportunity before handing over your money.
5. Unlicensed sellers. Many fraudulent investment schemes involve unlicensed individuals or unregistered firms. Check license and registration status.
6. No net-worth or income requirements. The federal securities laws require securities offerings to be registered with the SEC unless an exemption from registration applies. Many registration exemptions require that investors are accredited investors; some others have investment limits. Be highly suspicious of private (i.e., unregistered) investment opportunities that do not ask about your net worth or income, or whether investment limits apply.
It is highly recommended that you should follow the further steps in order to avoid disappointment and financial losses:
Read the White Paper carefully, and in full
This should always be your priority, since White Papers contain most information about a company’s vision, its services, developers and so forth. Pay special attention to the strong and negative aspects. You’ll also need to carry out your due diligence to ascertain the facts listed therein. Research is definitely vital for ensuring you don’t venture into uncharted waters.
Find out who makes up the team
Find as much information as possible about the team, especially the development team and advisory board. Visit their LinkedIn profiles and see if the team has any relevant experience. How did their past projects turn out? Generally, the team competence has a direct impact on the project outcome.
Determine the market potential
A good ICO project is one whose market is bullish on the long-term. The product is the most important aspect of the investment proposition; will users adopt it and is the solution technically feasible and scalable? No doubt, the size and status of the addressable market should never be overlooked.
Consider what others think
ICOs often market themselves on various cryptocurrency forums as well as social media platforms such as Facebook, Reddit, Twitter, and Instagram. Check out ICO’s presentations on these platforms and keenly read through people’s responses. Take other people’s perspective along with their advice even if they contradict your own. Make sure the team is approachable and able to respond to questions accordingly. If the team can’t communicate well with their community, or it seems less transparent in their dealings, you need to be wary of them. Watch out for bounty posts where users spread positive information for rewards.
ICOs will get even more mainstream as a method of raising funds in the near future. In-depth scrutiny should always precede any investment decision. Besides, remember to hold on to your money even with the slightest suspicion! Invest responsibly!