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Should you invest in ICOs?

Author: Ronny Martelli


TORONTO - February 26, 2018 ( Newswire) Are you wondering whether investing in an ICO is a good idea for you? Does the idea of blockchain technology or cryptocurrency excite you? If so, then this article will illustrate that it all depends on two things: your motivation as an investor and your understanding of the ICO landscape. If you are trying to diversify your portfolio and have some background knowledge of the ICO scene, then I'd say, yes, you should invest in ICOs. Initial coin offerings are now a mainstay of the cryptocurrency space and are one of many ways you can get the best returns on your investment.

However, the answer to the above question cannot be relegated to just a simple yes or no statement. Read on to find out why you should or in hindsight, why you shouldn't.

Why you should invest in ICOs?

Initial coin offerings represent one facet of a fast-growing cryptocurrency and blockchain landscape. The success of some of the projects launched after raising funds through ICOs and the huge returns to early backers means that investing in ICOs can be a very good idea.

Before you rush out to back that token sale, consider these points that could be the difference between reaping benefits and losing everything.

  • What's your investment goal?
    • Do you have any specific financial expectations as you get into ICOs? Establish why you are getting into ICO investment, what you want to achieve and what your strategy will be. In short, what's your investment plan?
  • How much do you know about ICOs?
    • Even if you do, you should still do a thorough research for every ICO you wish to invest in. Seek to understand the ICO product, the team behind the ICO, what the cryptocurrency community thinks about it and generally whether there are any red flags to note.
  • Does the product make sense?
    • Find out if the idea behind the ICO makes sense to you. Ask whether there is a demand for that product whether the underlying business would do well using a token model.
  • Are there legal considerations to make?
    • The current ICO ecosystem is increasingly coming under scrutiny and therefore, you need to find out what obligations you may have as you invest in the token sale.
  • What are the risks involved?
    • Like every other investment, ICOs have associated risks that you should consider. The risk of fraud is the highest in cryptocurrency or projects may fail to do well and may result in losses. In fact, you should only look to invest in what you can afford to lose.

You have taken note of the above and want further advice whether you should go ahead and invest in ICOs. Well, here is why you should consider investing in an Initial Coin Offering.

Support for startups

This reason is not solely profit oriented. As a contributor, you may directly contribute to the launch of a great project through the ICO funds you give. Think of a project like Ethereum that launched via an Initial Coin Offering in 2014. As we speak, Ethereum has become the biggest cryptocurrency platform on which so many other startups have launched successful products. So for that alone, investing in an ICO is a good idea. But that is not the primary aim of an investor, so here is another reason that should make you consider investing in the right ICO.

Huge returns on investment

When you invest in an Initial Coin Offering, you are risking your principal amount in the hope of getting good returns. To many people, ICOs offer a quick route to huge ROIs in a very short time. If the token sale succeeds and the ICO token coin begins to trade, chances are the value will double or even triple in no time, earning you immediate returns.

To use Ethereum's incredible price jumps, the Ether token was sold to early investors at $0.311 per ether token. By 2016, ETH traded at over $10 and a couple of months later it was well over $100. Then the value exploded in 2017, rising to over $1400 by the end of the year. In terms of ROI, the amounts involved are just incredible. And it's not Ethereum only; other ICOs like NXT, IOTA, Stratis, and NEO have returned massive profits to investors.

Check out this ICO list to get a clue of what I mean.

It is very rare to hear of such returns in other markets. So, per ROI only, you can consider investing in ICOs. The only problem is that there aren't so many Ethereums, NXTs or IOTAs out there. And that brings me back to the issue of taking risks. Are you willing to risk? If you can, go ahead because you never know.

Freedom of the market

Another reason you should consider investing in ICOs today is that they remain largely unregulated. Market fundamentals are not tied to any central authority, meaning prices can go as high as possible (though the reverse is also true).You can virtually reap returns before the tightening regulations make the investment terrain uncomfortable. There are currently no major barriers regarding who can participate in an ICO, but I see things tightening down the road.  However, do not be lured into making an investment out of fear of missing out; you are likely to lose anyway.

Why should you not invest in ICOs?

Having said that, are there chances that investing in ICOs isn't a good idea for you? Of course, there are. Granted, there isn't a single business venture without an inherent risk. Risks of deals going south, companies folding, or technological advancement rendering the investment moribund are just a few of the things that can go wrong for any business. However, investing in ICOs are riskier as you are engaging in speculative investing. Many of the ICOs launch products that may never make it and yet collect funds from investors.

Cryptocurrency and ICOs are also fertile grounds for cyber criminals and hackers. You are likely to lose all your investments if your wallet is compromised or the exchange is hacked like what happened at Mt.Gox and recently CoinCheck.

And then there is the issue of Ponzi or Pyramid Schemes. There have been cases where ICO founders have disappeared with the funds after the crowd sale. Many governments have warned their citizens against investing in ICOs for these reasons. Countries like China and South Korea have even gone further by imposing total bans.

Bottom line

Investing in initial coin offerings picked up the pace in the last two years, and the ICO ecosystem is still growing. While it offers a chance to get huge returns on your investment, the attendant risks are real and high. So, the advice boils down to this: only invest that which you can lose and still afford a smile.

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