ICOs

ICO’S  – Money Does Grow on Trees, But Only if you Pluck it Fast Enough

By February 13, 2018 No Comments

The picture shows the Amazon stock at it’s lowest point on May 16th, 1997 and how it has gone up by 8,162% since the IPO roughly 20yrs ago. YAHOO FINANCE/GOOGLE SEARCH

Did you know that Ethereum itself was an ICO? Did you know that upon market entry it lost over 90% of its value? And now it’s made over 100,000% returns in less than four years. How peculiar is the world? Compare that to stock market gains where 30% per year would be optimistic and you can see why so many traders and investors are eager to enter this emerging market.

ICOs — short for Initial Coin Offerings, are new ways for companies and decentralized teams to raise capital on the blockchain. For an ICO to raise money all it needs to do is create a smart contract on the Ethereum network, or one of the other major ICO blockchain networks like NEO or KMD, and issue a token. They can put a value on it, let’s say 3000 ABC coins for 1 ETH, advertise some use for the token, for example a digital library on the blockchain, and wait for people to send them money via their contract address. That is an ICO at its core. Many ICOs have proven to be extremely profitable for cryptocurrency enthusiasts at least in the short-term. However, there are some critical pitfalls that are too often overlooked and underestimated by new opportunistic investors. Here I will explore the majority of these and give some examples of ICOs that have failed miserably so that you don’t have to fall victim to scam ICOs or ones that are not worth your time.

The Technicalities

First, let’s explore the technical aspects of ICOs such as total and available supply, maximum market capitalization and price per token, early bonuses and so on.

Total Supply

Total supply is just the total amount of coins that are planned to be in existence. There is no set amount of total token supply needed as a golden rule. Knowing the total supply is useful for understanding what percentage of the tokens will be allocated to the team and what will go towards the public sale. More important factors are the market capitalization and available supply during a sale.

Available Supply

This is the amount that has been allocated for the public sale. This is usually half of the total supply. If any ICO gives less than half the supply away for its public sale, it ought to have a pretty good reason for it otherwise it’s a no-go from me. In addition, the tokens that are not given out should be vested for at least a couple of years, so that the owners can show that they’re serious about the project.

IMAGE FROM DRAGET

Market Capitalization

This one is extremely important. Market capitalization is the amount of coins in circulation multiplied by the price per coin. In this case, it’ll be the ICO price multiplied by the available supply. I do not opt for ICOs that are aiming to raise more than $50M in their ICO stage primarily because this amount is a sufficient introductory financial basis for those who intend to build a concept (unless they’re funding a full-sized colony for space exploration or something of the sort). As an investor you’d expect your token to appreciate in value when entering the exchange. Well, if the market capitalization is let’s say $500M it puts the token in the top 50 of the current climate. They sure as hell better have a damn good reason to value themselves at that level before even entering the market. What’s the point in investing then when it’s already amongst the top? You want an undervalued, underappreciated token that you can grow with. Anything over $50M for me seems too greedy and bordering on a quick cash-grab from the ICO issuers. Hence, I stay away- and you should too!

Early Bonuses

This one is pretty simple — the earlier you invest in the ICO, the more tokens you will get. Many ICOs do it, and there’s no problem with it. That is, unless the early bonuses far outweigh what the final participants will get. I’ve seen ICOs that during Pre-sale give 50–60% bonus to investors. That for me is a no-go. At most I’d want a 30% bonus for early investors. Otherwise, it just seems like the ICO is luring opportunistic flip traders — people who want to invest in an ICO just to flip it on market entry. Flipping on market entry isn’t wrong — in fact, I’ve done it myself a few times. But these huge bonuses have a high chance of running the price down from the very beginning so even flippers cannot gain any profit from it, at least until big developments are realized.

Referral Codes and Links

In general, there is nothing wrong with referral links as an option for influencers. But if an ICO is pushing heavily for EVERYONE to use their referral links, then there’s something wrong with that ICO. A good product will easily be discovered in the crypto space. If a team desperately needs to use referral tactics to get sign-ups to their ICO, there’s a high chance that what they’re selling isn’t worth the energy it cost to produce the code they’ve written. So, I personally stay away from highly referred ICOs.

Min Max Contribution

This is an overlooked characteristic. If an ICO aims to raise $50M but a company or rich individual can drop $5M and take 10% of the supply, that’s not exactly decentralized.

That leaves great risk for smaller investors to be dumped on market entry and left hanging. That happened with Basic Attention Token (BAT) at the start of its journey and left many investors disheartened and forced to leave the project at a loss fearing that the few big investors who had taken up the supply had too much control over the market. So, unless you’re one of those rich investors, look for ICOs that have a maximum contribution limit.

Market Entry

This one is of vital importance for short-term ICO flippers. Make sure to research when the ICO will hit major exchanges. You don’t want a surprise when it gets listed on Binance at x10 initial price only to gradually drop off in value in the next few days until you finally get your tokens on the exchange. Also, find out how many days/weeks after the ICO the coin plans to be on exchanges. I am still holding onto a token that had its ICO in July and has yet to hit exchanges (it’s now February). You do not want your money to be out of the market for such a long time unless you plan to marry the ICO and hold it for over 5 years. Generally, I wouldn’t marry anything except Bitcoin and Ethereum. But high risk yields high reward for the right speculator.

The Perfect Match

Now that we’ve outlined the technicalities and what we’re looking for from each one, let’s draw a perfect ICO scenario to look out for.

IMAGE FROM COINMARKET CAP

Price per token: $0.05

Total supply: 100M

Available supply: 60M

40M remaining supply vested period: 3 years

Market capitalization: $30M

Maximum Pre-sale/early sale bonus: 20%

Referral bonus: 5%

Min contribution: 0.1 ETH

Max contribution: 50 ETH

Market entry: 3 weeks after end of ICO

Simply on technical terms, if you see an ICO like that, you’re already half-way into a gold mine. However, we live in a real world with real people and real projects. That cannot be ignored, and is just as important, if not more than the technicalities.

Fundamental Analysis

This section focuses on what the token is trying to achieve, what its use-case is, who the core members are, what is their vision and plan of action, who are the advisors to the project and any potential future partnerships or deals that we can anticipate.

The Team

A great project is always defined by a great team. I like to see a mix of old and young people for that blend of experience and youthful zest. At least ten core members in the team for a serious project. If they have any famous advisors advertised on their site, make sure that they indeed are advisors and not just influencers that have endorsed them once or twice. When going through the team, look at their social profiles and see if they are openly advertising this project in their bios. If they’re serious about it they will show it, and if they are not, you shouldn’t bother with it.

Make sure the team has enough relevant experience to take on the difficulties that come with the project.

The Perfect Match

Now that we’ve outlined the technicalities and what we’re looking for from each one, let’s draw a perfect ICO scenario to look out for.

Pictured: David Schwartz the Chief Cryptographer at Ripple.

And finally, get a feel for their attitude, either by reaching out to them directly or looking at how they handle themselves on social media platforms. Too often I’ve seen great projects with unprofessional teams who have run them into the ground or are in the process of doing so. Don’t back these people with your money, because you will get burned.

The Idea

Make sure the use-case for the project is not so broad that it seems impossible to achieve, but not too niche so as to leave no room for growth. You want something in the middle, something you can ride along with for a good few years, or something exciting you can flip for a big profit on market entry because you know it’ll get people riled up to buy more of it. For example, a token for transparently feeding undernourished ant-eaters in the tropical jungle during dry season is probably a bit too specific. Yet the ambition of becoming one singular global currency, means of exchange and store of value is also a bit too ambitious, and should be left to Bitcoin.

The Vision

Whatever the idea is, make sure the team has a clear vision for where they want to get to and how they want to achieve it. A roadmap is great, but even if there’s just plain text on how their progress will be followed through, that is enough. As long as it’s clear, simply laid out, and you understand what the key developmental milestones will be, that is good enough.

Partnerships and Deals

This is a tricky section because a lot of ICOs like to flaunt around big names without any apparent ‘on-paper’ deals or partnerships. When looking into this make sure to dig deep and see if they really have a specific ‘deal’ with, let’s say Microsoft, or are they just using Windows software in their PCs while writing the code. If a big-name partnership is being pushed as advertisement material don’t take it at face value, or you could end up being deceived and at a loss before the true news comes out. Cryptocurrency investing is still the Wild West, with no regulation, no shame, and no brakes. The responsibility for your hard-earned money ultimately falls on you. You have to conduct your research with great diligence and make sure you know where your contribution is going to.

Personally, I find that deals with other cryptocurrencies in the space are much more powerful than those with traditional companies, and in fact boost the credibility of both cryptos involved. You want to go for ICOs that have those kinds of partnerships advertised, as they often tend to be a lot more genuine than those with a big-brand name.

Conclusion

There was an ICO called Confido that was advertised in Fall of 2017. It hit the market around 7th of November at $0.30 per token. By the 14th of Nov it was well over $1. By the end of the month it was less than $0.01.

Confido went from $1.18 at its highest to only $.03 in a matter of 6 days. CONFIDO/COINMARKET CAP

Investors, both in the ICO and on the market, lost 90% of their money. Turns out there was a legal flaw in the way the company was structured (according to the founders), and that prevented them from going forward with the project. If you had put $10,000 in the ICO you would have probably lost around $9,000 unless you had flipped it on its peak. I leave you with this story because it depicts the dark side of ICOs. Only the popular ones get to be on the front pages, and some don’t even make it to exchanges. Disasters like these are forgotten, and the few who lost it all are forgotten with them. If you want to invest in ICOs make sure you either know what you’re getting yourself into or if you’re too lazy to research the fundamentals (not recommended), at least flip that quickly for more Bitcoin or Ethereum upon market entry. Right now, we are in the golden age, take advantage while it lasts- but do not get complacent! You’ll never be sad holding BTC or ETH in the long term, but 90% of ICOs will fail, and you don’t want to be on the receiving end should yours collapse too.

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Thanks for reading

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