As an investor, there’s a term that you might be hearing a lot about, but not completely understanding what it is An initial coin offering or an ICO is a term that goes along with the concepts surrounding cryptocurrency. The following is an overview not of everything to know about ICOs, but some of the most important facts.
Crowdfunding
A lot of people refer to ICOs as the “Kickstarter” of cryptocurrency, and what this means is that they’re somewhat similar to crowdfunding. If you’ve ever explored Kickstarter or other crowdfunding sites, you know that it’s a concept where people see ideas that they think have a future, and then they invest in them.
When the product actually hits the market, investing is more expensive than what it was for the crowdfunding investors, so the early investors have a unique opportunity.
An ICO is somewhat similar to this in that investors buy crypto tokens when they’re still in their early ICO stages. Then, the early investors have the hope that when it’s added to a commercial exchange, the price will go up.
With some ICOs the investors will get additional incentives. For example, when the Mysterium Token launched its ICO in the spring of 2017, investors got an additional 20% on top of their token purchases.
Why Do People Participate in ICOs?
As an investor, you’re probably always looking for new opportunities, and you may be wondering what it is about ICOs that are compelling for people.
ICOs provide the opportunity to buy below market value (possibly), and there’s the chance for massive financial returns. There are also the added benefits discussed above, such as a percentage increase on the purchase investors make.
Basically, investors are getting the opportunity to buy tokens at the lowest prices they’ll theoretically be at, with rewards in addition.
However, there are reasons to be cautious of ICOs as well.
Unregulated
One of the biggest concerns about ICOs is the lack of regulation surrounding them.
People who aren’t in favor of ICOs tend to feel like they’re not only unregulated securities but that they let founders raise capital that’s not rooted in actual value. There have also been some changes issued by the SEC regarding tokens issued in ICOs, and many of these projects have altered the way they do things as a result.
The SEC is looking at more regulation when it comes to ICOs, and they’ve made statements letting people know that virtual transactions are still subject to the regulatory guidelines of other securities.
The entire concept of an ICO is not only risky, but also fully speculative in nature, and it allows founders to raise enormous amounts of money in some cases.
There is also a feeling with ICOs that it’s a way to raise money quickly and easily by going around the typical regulations associated with fundraising.
Be Vigilant About Potential Scams
If you’re an investor considering the merits of ICOs, there are some specific red flags to watch out for.
First, any unsolicited offer should be something that you carefully scrutinize. If you didn’t ask for information about a certain investment opportunity, it’s probably best that you avoid it.
Also, you should enter into anything involve ICOs or cryptocurrency with the idea that you’re subjecting yourself to a lot of risk and anything that guarantees certain returns could be problematic.
Fraudulent fundraisers may also try to make it seem like you have to buy right away, but any legitimate opportunity should allow for the necessary amount of time to research and perform due diligence.
Finally, something else to be wary of is an opportunity that doesn’t have income or net worth requirements attached to participation.
The ultimate takeaway for a retail investor eyeing ICOs is to use caution and do your research. Sure, investors have made a lot of money by getting in early on these cryptocurrencies, but there’s also been a lot of fraud, and money lost.
There are plenty of unknowns with ICOs and the cryptocurrency world in general, and it’s a learning process even for experienced investors.
It can be tough for the typical retail investor to separate good ICOs from fraudulent activities, just because there are so many unpredictable variables at play, but if you do want to get in on ICOs, make sure you do take the time to learn, and you go through a legitimate site.
Also, look at multiple sources of information including forums and social media so you can hear what others are saying before making any decision.