5 Tips for Investing in an ICO
If you’re looking to invest in an ICO, you need to be sure that you’re doing everything possible to maximize your chances of success.
One of the most popular ways to raise money for early-stage cryptocurrency projects is through an ICO, “initial coin offering.” ICO means that early investors can purchase digital tokens created by blockchain-based enterprises in return for coins like bitcoin or ether.
For the crypto company, ICOs can help establish an incentivized customer base eager for the project’s success. This can cause the tokens to rise in value.
Aside from the ease of funding and the creative approach to raising capital offered by ICOs, investors can also gain access to a token’s services and an increase in its value if the platform is successful (a big IF!).
Once the tokens are posted on an exchange, investors may be able to sell them for a profit or increase their stake in the project by acquiring additional tokens.
Who can create an ICO?
Anyone can start an ICO. Anyone with access to the right technology can establish a new coin in the United States, where there is currently no regulation of ICOs.
How does an ICO work?
The primary objective of any ICO is to raise funds for the company that issues it. The company selects its target audience for its fundraising campaign and generates the necessary information for potential investors to learn about the project.
The next step is the creation of tokens. Tokens on the blockchain are essentially digital representations of real-world assets or services. You can exchange the tokens for other kinds of goods.
To avoid any misunderstanding, these tokens are not to be confused with cryptocurrency. There is no equity stake in a corporation with tokens, unlike stocks. As a result, the vast majority of tokens are linked to the company’s products or services.
The development of tokens is more accessible than creating a new cryptocurrency because a corporation does not need to write the code from scratch. Instead, the tokens can be created on current blockchain systems, such as Ethereum, making minor code tweaks.
Once the tokens have been produced, the company can offer investment opportunities for potential investors.
Tips for ICO investments
The following tips can help reduce your risk and increase your chances of making a profit when investing in an ICO.
1) Explore the team’s history
Learn about the company and the people behind it before deciding on an ICO. Although most of the companies are just starting, many of the founders have been in the industry for a long time. It’s helpful to review their profiles and any news about their previous initiatives and endeavors.
Look for a proven track record of success in the crypto industry. It’s a red flag when the team doesn’t have a CTO who has worked significantly on crypto projects in the past.
2) Review the whitepaper
Every ICO is required to publish a whitepaper, which is a detailed overview of the project from conception to conclusion.
Jargon-heavy as they may look to the inexperienced, they contain a lot of helpful information for potential investors.
There are a few things to look for:
- The development teams and consultants listed
- An adequate statement of the project’s basic idea
- Is blockchain technology required for the project?
- The market for the product or service, along with its competitors
- At the absolute least, proof-of-concept work or a technical description of how it will be carried out
- How tokens or currencies will be distributed
- Estimated finances required, as well as their planned usage
- Strategy for future development
- Token specifics, such as the number of available tokens and when they will be issued
All of these factors are important considerations before investing in an ICO. In the absence of a hard restriction, the amount of money that can be raised or the number of tokens that may be distributed in an ICO can be unlimited. When there is a large supply, demand falls, causing the token price to fall.
3) Recognize and understand the target audience
When evaluating a company, its technology, and its product or service, it is vital to keep the target market in mind. Understanding the market and regulatory settings in which these businesses operate is critical to understanding the challenges and possibilities they face.
A healthcare blockchain service, for example, has a lot of potential right now due to current regulations for pharmaceutical manufacturers.
Because of rivalry from well-established enterprises, though, starting such a business will be challenging. When looking at a startup, then, ask yourself the question, “Is it revolutionary enough to rock the world?”
4) Observe the technology in action
A company’s proof of concept can also be used to gauge its feasibility. This proof of concept shows that the blockchain project idea is tested to see if it can be implemented in a real-world context.
Successful ventures are more likely to have functional prototypes or pilot projects. There is a considerable difference in risk between ICOs that provide nothing more than an idea versus businesses that already have a working prototype.
Proofs of concept are essential in demonstrating the competence of these businesses. Additionally, investors ought to be allowed to test out the technology to evaluate if it is appealing to its intended audience.
Technology-based ICOs are more likely to grow toward commercial viability than those that haven’t even begun development.
5) Examine the community
Long-term and short-term success of an ICO are intertwined and depend on the support of the cryptocurrency community. The majority of ICOs now include community centers on popular platforms such as Reddit, Slack, Discord and Telegram. These are a valuable source of information about upcoming ICOs, so visit each of these communities and listen in on the conversations to learn more about the investment you are considering.
A dynamic and active development team will provide regular updates and keep you informed of progress in terms of the planned roadmap. If you have any questions or issues about the project, you can bring them up for the project team to address.
ICOs allow investors to get in on the ground level of new enterprises in the exciting world of cryptocurrency. To determine whether an ICO is worth investing in, though, be sure to do your due diligence by researching the project carefully.
Investing in the appropriate cryptocurrency might yield large rewards, and who knows? You might just be lucky enough to invest in the next Bitcoin or Ether!
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