Many investors are attracted to cryptocurrencies for their liquidity. Rather than playing the long game and investing vast amounts of money in a startup which is then locked up in equity of the company, ICOs offer the opportunity to see gains much quicker and can take profits out more easily.
One of the advantages is that ICOs create growth equity without giving up equity in most cases. This means that the venture founders do not give up or dilute existing ownership in their start-up by raising funding. However, as an investor, this can turn into a risk because investors have no voting rights, as opposed to traditional equity ownership in a company.
ICO build a global community of pioneers, early adopters, and investors who are incentivized to spread the word about a given project or platform and thus expanding the network. The more people join the network the more the platforms benefit from a positive network externality.
Successful ICOs, with the added liquidity, have resulted in multiple times return on initial investment comparable to angel investors returns from investing into a successful start-up. Although coins are not securities, investors can exit at any time, they have a similar liquidity to gold, stocks, and foreign exchange trading on global markets.
However, whilst there are benefits to investing in an ICO, there are also a number of risks associated with this kind of investment including; an unpredictable market, volatile token valuations and a lack of a formal process to audit an ICO organisation. Before seeking to invest in an ICO, you should always look for professional consultation from an industry expert.
Risks of the ICOs:
Inspite of the fact that ICOs have been gaining traction over the last few months, investors should be careful and perform their due diligence when investing in an ICO. The ICOs are often issues in an unregulated environment, meaning that Securities Exchange Commission (SEC) or other regulatory bodies do not have the oversight over the ICO process. The funds that are lost due to a fraudulent process may never be recovered.
The rapid rise of ICO especially in 2017 shows some typical characteristics of a bubble and draws comparisons to the 1999 – 2000 dot com bubble. Despite being unable to determine the actual value the ventures, the number of companies seeking an ICO as well as the total dollar amount invested into ICOs has increased. Therefore, ICOs have placed high valuations on some start-ups that do not match the economic value of the startup, which is a typical and similar pattern to the dot com bubble. Most of the crypto projects don’t prove worthy of investment. Moreover, the entire process largely remains unregulated. Unlike IPO where a company raises money in form of a legal tender, an ICO is backed by cryptocurrencies. Though it is easier to launch an ICO due to almost non-existence of limitations, it exposes the investors to high risk. This is the reason why China has banned the practice altogether. The continues warnings issued by other governments also indicates that there could be regulations coming in future.
Fraud is part of the ICO market as there have been cases of inaccurate or false information. The lack of reliable information and disclosure is an issue given offerings are posted on online forums, where contributors are easily able to add positive or negative publicity on a given ICO. This leaves some investors confused or not confident to act on an investment decision.
We should definitely mention the Millennials who are a target audience for ICOs. The Millennials are always there to embrace all innovations, including those ones which emerge in the tech and financial realms. According to Forbes, 30% of those in the 18-to-34-age range would rather invest $1,000 in Bitcoin than $1,000 in government bonds or stocks.The millennial interest in trading cryptocurrencies is hard to ignore, yet they are not the only ones interested in this market. Despite the volatility of the cryptocurrency market, millennials see it as a more trustworthy alternative to traditional products like stocks, bonds and even insurance. There are many reasons why this young group’s preferences swing in the opposite direction of their parents’, but the likeliest is that they witnessed the 2008 financial crisis firsthand and don’t feel comfortable or in control as stakeholders of this system. Who would trust products that can be obscured and manipulated to such a worrisome extent without consequences? Better to participate in a newer market where entrenched stakeholders have less sway.
The first generation to mature alongside the internet, millennials are a distinctly tech-savvy group. They can understand and appreciate the benefits of blockchain technology, especially its participatory aspect. For younger investors and entrepreneurs alike, the initial coin offering model represents a more accessible, democratic way to invest in new ideas or to launch their own, without jumping through the hoops present in the status quo’s investment arena. Millennials are eager to become not just customers but also stakeholders in the applications of tomorrow and have a real knack for picking easier solutions. Blockchains empower millennials to become part of the platforms they believe in and thus create more comprehensive and better models for various technologies. Offering more than simple financial services, this trend has led to an explosion in high-tech offerings which disrupt established paradigms. More than having a stake in the future, millennials want to use blockchain technology to build it with their own hands. The digital ledger is a revolutionary tool for promoting pure transparency, which is a word that has little relevance to today’s politics, financial markets and business world as a whole. Millennials love the internet, but this also makes them intimately aware of its downsides, namely that it only exacerbates media bias, corporate control and political obfuscation. Many in this age group see open-source blockchain technology as an accountability tool, one that will create a better system for voting, sharing data and advertising for instance. Millennials are growing up and can no longer be characterized as the youngest and most naïve generation. They’re waking up to the inequity present in the world and are hyper-aware of the status quo’s faults as well. Blockchains provide not just productive ways for them to air their grievances but also social and financial tools allowing millennials to demonstrate what the problem areas are and, at the same time, exactly how to fix them. While the future for blockchain technology is anything but clear, if millennials have their say, it will not only stick around but grow and flourish.
The competition for the coin is expected to become tougher in 2018 as new players enter the domain. If you want to invest in cryptocurrencies, here are the essential tips to do it the right way. Generally, there are four main downsides to ICOs: they’re unregulated, they’re hard to research, they clog the blockchains, and they can devalue other cryptocurrencies. At the same time, ICOs bring new development ideas to blockchain technology quickly. These ICOs bring us new functionality and fix existing limitations, hopefully becoming even more beneficial in the long term. So how do you navigate the hundreds of new tokens going to ICO and sort the profit makers from the scams?
Beware of the bots
Financial markets are prone to speculations and cryptocurrency trading is no exception. Some “savvy” players are now using bots to artificially inflate the coin prices and manipulate the markets. the two biggest indicators of bot market manipulations are price momentum and volume. As an investor, you should carefully watch these two parameters and try to notice coordinated buy patterns early on. The alternative is to use a cryptocurrency trading analytics platform that will do “the watch” for you.
Allocate your assets based on your risk tolerance
First and foremost, you should set a stop-loss level to avoid financial collapses. A stop-loss is the level of loss where the trade will get closed.The best strategy is to always keep an eye on the market signals and use those insights to adjust your trading strategy on a daily basis.
Resist overtrading and FOMO
Both novice investors and their more experienced peers are often prone to these two mistakes that come hand in hand.First, there’s the trading FOMO – fear of missing out on buying the new hyped coin and “losing” some potential profits. Investors often feel urged to buy a certain coin when the price is being pumped up and end up allocating a lot of over-hyped and often, illiquid assets. Trading a certain asset just because it’s in profit is not a viable long-term strategy as it can diminish your future gains. After all, if the coin rises 10 times in price over a year, an 80% loss will wipe out that 400% gain you have initially made. Additionally, overtrading will result in a significant chunk of your assets being eaten up by exchange fees.
Despite the risks, the demand for ICOs and cryptocurrencies is increasing. ICOs exhibit high risk/high reward and while some have been extremely profitable, other have failed, leaving investors with useless tokens. In an ICO there is significant trust that the project will be completed; however, if the project is not completed there will be a loss of invested capital. Therefore, it’s recommended to thoroughly review all available information and aspects of the ICO before making an investment decision.