With the current vast oversupply of ICOs in Nov 2017, and the legal collapse of projects like Tezos, the ICO market is extremely dynamic, complex and needs more than ever, careful analysis before making any decisions. You can still make great profits as there are some good projects out there, but the majority are ones, which can lead to significant losses if you don’t do your homework, right.
This is why, If you are looking into buying into an ICO, make sure you read this article very carefully as I will outline 6 rules that will help you invest wisely on ICOs, History is proving us who is right and who is wrong and you can’t afford to ignore this because this is the fastest developing market at the moment.
Rule # 1 – Choose the Right Sized Projects, focus on value and avoid projects with too much hype
When it comes to sizes, it appears that there is a “golden range” where projects are not too small and not too big. This range is statistically proven to be in the $2M to $10M. Don’t forget that ICOs are start-ups in nature.
Google was founded in a garage and was later on funded with $1M USD. Generally if the project and the team are good, any raised amount in the range between $2M and $10M would be more than sufficient to build the project and to get to a point where they can make a proof of concept. And in the same sense if a project is bad or the team is made up of idiots, giving them $232 Million is not likely to solve any of the problems.
Don’t forget that this is the initial funding that the company needs to deliver their project. Once they do, they should scale up their operating revenue according to the size of their business.
In addition, team founders will not be incentivized to work towards improving their token value, because If they raise $232 Million before the project starts, then they would have already made a fortune that would definitely have an impact on their motivation and focus.
Rule # 2 – Analyze the team and make sure they are already successful
If the team founders don’t have any other successful businesses – ditch them! Make sure the founders are business oriented. They must have proven already with other projects in order to be eligible for your money. Otherwise it would be something similar to throwing money at someone who has no idea on how to develop a business from scratch. Doing that will not make him learn how to do business. Also if they are successful, it would imply that they are not likely to commit any illegal stuff as they have a reputation and a life to lose.
By choosing a successful, experienced and business oriented founders team, you greatly increase your chance of success. This by itself is the most important value metric, but I place it at #2, simply because of the regulatory risk associated with #1 which can easily ruin a good project regardless of the founders experience.
Rule # 3 – Avoid projects with big “Dark periods” in their road-maps
The concept of ICO is to launch a cryptocurrency that would be useful and widely adopted. This is possible only through a service which should be innovative, disruptive and with high and immediate value to the retail users. Waiting 1 year to get an alpha version is not acceptable.
Ideally you should be able to get a feeling of the service during the ICO itself and be able to spend your tokens immediately after the end.
Rule # 4 – Make sure there is a reasonable Hardcap, any unsold tokens – destroyed and that there won’t be any future offerings
With current abundance of ICOs it is becoming much more often that projects don’t meet their hardcap. This is generally not a negative signal as long as the raised amount is over $2M, as like already mentioned, a group of smart people will perform better in the long term with $2M than a bunch of idiots with $232M.
This is why it is extremely important the token holder to destroy all unsold tokens immediately upon finalization of the tokensale. This will ensure that the supplied amount of tokens will be corresponding to the demand of the market and that its economy will be in balance.
Also making sure there won’t be future offerings on the same token. This gives you protection against oversupply and this way the price can potentially go up as high as 500% – 1000% increase within a year.
Rule # 5 – Make sure the project really needs to be on the blockchain and that it is disruptive in character
We see an enormous amount of projects doing ICOs simply because they want to get a piece of the pie without actually needing to utilize blockchain technology. You should carefully read the whitepaper and make sure that blockchain is an absolutely invariable aspect of the project and that it adds unique value and competitive advantage.
Otherwise it would mean that they are making an ICO just for the purpose of making an ICO which is a major red flag.
Also make sure the project has a disruptive character. This is because it is extremely hard to penetrate established leaders regardless of the niche and the project should not rely on marketing. It should rely on core value and disruptiveness that creates viral effect among retail users.
Rule # 6 – Make sure the founders are engaging with the community and that they need their token to increase in value
Another huge plus of having a project with a reasonable size is because the founders are more accessible. The best projects I’ve invested are ones, which I had the ability to communicate with the CEOs and founders of the projects in their community channels. Avoid projects where community managers manage everything and you have to go through several people to get to speak with the founder or the CEO. Those are just employees and don’t give a damn about you or your money. An investment should be personal as this minimizes risk.
Also make sure that the founders will be bound to make their riches from their own token, and not from the Ethers they raise during the ICO. This way you will be certain that your interests are in line with theirs which is very important as they will be managing the money you put into their token and will be working harder towards achieving that mutual goal.
Another advantage is if the founders are not giving priority to the profitability of the actual business, but rather they strive that business to achieve a high market share and increase the circulatory demand for their token (even if it means to be operating the business at break-even), so that their token can increase in value as much as possible.
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