Perhaps you already know a lot about major cryptocurrencies such as Bitcoin and Ethereum. Possibly you might have heard about ICOs too. However, very few people know how to evaluate whether an ICO is worth their investment.
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So first things first, what is ICO investing? Simply put, as an investor here you are putting your resources in companies that are not yet developed; they are essentially looking for finances to start.
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Already, there are hundreds of ICOs out there and more are in the pipeline. If you are a newbie investor and you are wondering where to find these ICOs, check here and here to see the current and upcoming crowdsales. Checking through the list, do you see how many they are? Really a lot! So, how do you know which one to invest in?
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As risky as ICO’s can be, you need to have a proven process that will enable you to identify startups with best possible odds for success. If you are the type of investor that throws money at any random ICO for fear of missing out (FOMO), your days are numbered. Here are the data points to analyze before you invest in an ICO:
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Big Idea
Always start with the nitty-gritties of the ICO project. Check out the project team, their advisors, the problem they are trying to solve, industry market size, revenue model and the viability/ practicality of the proposed solution.
As you analyze the project concept also assess the following; is the product a market fit, would cash investment help surpass the competition, and does the project encourage a massive adoption of the Blockchain technology.
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Only invest your money after you have understood the business case in totality. Also, do your due diligence by fact-checking to ascertain that all the information provided in the whitepapers is accurate; sometimes a startup can overstate facts about their project.
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Experience of the project team
Just like in any venture, the project team is even more crucial than the idea itself. With a dedicated team with the right skills and experience, even the most basic idea can go far, but if the team is incapable even the most sophisticated idea can terribly fail. Check to ensure that the ICO project team has the skills, prior experience as well as management capacity to complete what they set out to do.
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Proof of concept
A prototype is a great indicator that the team is committed and they are doing what they can to make their project a reality. In fact, the further the development phase of the prototype, the better. The criteria to look for here include; the product traction, tech side and the marketing skills.
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Unlimited or Hard Cap
Does the ICO have unlimited or a hard cap? In unlimited cap, investors can pool as much money as they would want; there is no limit on the number of coins that will be issued. The problem with this approach is that with more supply of coins the less valuable they become. On the other hand, in a hard cap, an ICO has a predetermined number of coins that will be issued. Since the coins are scarce they can later be sold out for a handsome return. Therefore, a hard cap ICO is usually better than an open/unlimited cap ICO.
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The other concern with an open cap is that it creates a loophole for ICO founders to collect as much funds as possible, only to disappear with their investors’ money. However, this should not imply that all unlimited-cap ICOs are fraudulent.
Token utility
Where can the token be used and how? Does it have several applications or is it just another me-too product? A good token should do more than just trading. The more functions a token can play in an ICO ecosystem the higher the chances that you will end up with an impressive ICO participation.
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Token Distribution
How is the token distribution among the team members? A crazy allocation such as 50% is just suspicious. For legit ICOs there is always a correlation between the token distribution and the roadmap. This because various project phases will require different levels of funding.
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While some project will allow trading as soon as the ICO comes to an end, others will wait till they develop a beta version in order to start sending tokens to their investors. And the effects can be huge, for example, in just a year after Etherium was released, it gained a whopping 5000%. In the same period, other ICO’s like Augur only gained 1,500%.
The Project Roadmap
Is the project roadmap realistic or is just another wish list? ICOs that have specific, measurable, achievable, realistic and time-bound plans are often a better choice. You need to understand where the project started, what has been achieved so far and what they are working to achieve in the future.
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You also need to understand how long you would need to wait for the project to be profitable. Also, get to know what the founders intend to do once the ICO has ended. Be wary of companies that want to offer their services only for a short period of time, and have no tangible project growth ideas planned well in advance.
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Fund Transparency
How will the startup spend the ICO funds moving forward? A great company should clearly demonstrate how they intend to grow the invested funds. Other details that should be disclosed here include; the amount of tokens released, number of tokens that will be sold in a pre-sale as well as other post-coin offering phases, and also how proceeds will be distributed.
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The ICO Ratings
There are several ICO rating websites out there you may consider, the common ones include; icoholder, icolink and trackico. Check to see whether the ICO is listed, usually a rating of 4 and above is considered good.
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If the ICO is proposed to get listed, have they disclosed the exchange names? If already listed, what kind of exchange is the ICO listed?
Size of the Community
The last thing you would want see is being the only person investing in a project. You see if only a few people invest in an ICO, exchanges may not have much interesting facilitating such trades, and the tokens might be harder to sell in the long run.
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Check out what social channels such as Medium, Steemit, Telegram, Facebook, Reddit e.t.c are saying about the ICO. If the ICO enjoys a sturdy community backing, this is a confirmation that there is demand for the project. No matter how well technically advanced a project is, it will fail if it cannot appeal to the masses.
Final word
Investing in ICOs can very beneficial; nevertheless, it is often a risky business. With the recent boom in ICO popularity, some are now being used to scam investors. In this article, we have outlined a simple money-ball approach to help you research and separate serious projects from junk ICOs that are simply out to get money from investors. However, as with any cryptocurrency, there is no surety that any given ICO project will be successful. Therefore, invest amounts that you can afford to lose should things go south.
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Note: This document with all the information in it is shared here to boost our knowledge of cryptocurrency , the original document can be found Document Source
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