Perhaps you have seen recent news about up and coming ICOs. Advertisements and news everywhere tell you to invest in it, but you are having second thoughts if you will have profitable returns.
Smart investors know that up and coming ICOs may indeed have a bright future before it, one that could serve as the bedrock of a long-term investment.
Anyone can find an up and coming coin or token and put money towards it but picking the right ICO, let alone multiple coins to create a diversified portfolio, can be an ordeal all on its own.
The current market in cryptocurrencies shows a volatile up and down trend because of newly created projects that don’t present any actual value. This results in an inevitable crash in the value of that token.
So how do you avoid these kinds of ICO scams? What are the criteria that you need to consider before investing your hard-earned money? Fortunately, much like traditional investments, there’s a lot you can do to maximize the odds of picking a winner. Here are seven things you check and learn before investing in an upcoming cryptocurrency or ICO:
Increase in Transaction Volume Over Time
One of the most important metrics you should check for is the coin’s transaction volume. This is how much of it is being used or traded. You can use this information to determine several important things. If transaction volume is high and wallet numbers are growing then the coin is in demand and is being used by more people. Keep in mind that big increases over a small amount of time may be short lived and it is important to review these metrics over a longer time frame.
For example, a sudden burst of activity in a traditionally flat or unused cryptocurrency may indicate that it’s in the starting phase of a pump-and-dump.
Long-term coin movement indicates constant use, which is good, but what you’re looking for is an increase in overall transactions over time. This is a good sign that the coin has growing value and is thus a good long-term investment.
Up and Coming ICO News
The value of an up and coming ICO is often down to what people think about it and the current hype around the coin. If people think a coin’s on the downturn, they’ll start selling, which pushes down its value even further. Most news reports are self-fulfilling prophecies, for good or bad.
However, if you’re looking for a long-term investment, you can’t look at the little bumps and dips. You need to look to the future and treat any news you see relative to what it could mean down the line. If it’s something that will impact is viability, move on. If it’s just another rumor, disregard it in terms of deciding whether or not it is worth your investment.
Beware of the infamous saying: Buy the rumor, sell the news.
Technological Progress and Roadmap
When people think about investing in a business, they consider everything about it. They research the company’s offering to see if it can be successful, and they study the team behind it. Ideally, investors want a great idea coupled with a fantastic team. That’s the same approach you should use when deciding on a long-term crypto investment.
ICOs aren’t just a way to make money - it’s a whole new and decentralized way to move value around the world. There are two aspects to its viability that are related to its technology. First is how much it has been developed. Technology in the theory phase is basically worth nothing, while one that has undergone many useful iterations has enormous potential. The second aspect is its pedigree, or the people behind it. Look for great engineers and businessmen.
Its Usefulness: Does it Solve a Problem?
Try to understand the actual value of the ICO that you are thinking of investing in. What problem is the digital token trying to solve? Does it benefit those people who trade in it, or is it just a perceived value based on the current market trends?
A good example is the existence of the Bitcoin. Bitcoin was made for several useful reasons. Through the blockchain technology, Bitcoin was able to solve the problem of transaction fees, provide anonymity for its traders, and a real-time exchange between users in a decentralized network. Bitcoin solves multiple problems, and this is the kind of value that you should look for in any up and coming ICO you are investing on.
Cryptocurrency isn’t just something to make money off. It’s a real technology, one that can change the landscape of the financial world. Each coin has its own twist on the formula, with its own approach to the technology, as well as a specific use.
When choosing coins to invest in, consider the products enabled by the base technology. Stellar, for example, boasts that it can make purchasing and selling fiat currencies quicker and cheaper than ever before, as it can serve as an intermediary currency, regardless of what you’re buying or selling.
Another good example of a digital cryptocurrency with actual value is the Ethereum. Ethereum is backed up by the value of the smart contracts it provides within its own network. Ethereum offers the ability to easily build decentralized applications through its blockchain. This is why Ethereum will be less affected by sudden market changes because it has an actual value independent from its perceived traders’ value.
If the technology is useful to people, the coin has a future.
Another blunder that investors make is rashly making decisions on an up and coming ICO investment just because the price per coin is cheaper. However, this is not indicative that they will get good returns. Many would think that a project with more coins that sell cheaper is a better investment than those with only a limited supply and expensive price per coin value. However, an investor must analyze why each cryptocurrency is set at that price and how much coins are available for trading.
Many cryptocurrency creators would try to deceive people by creating unrealistic offers and cheap deals. As an investor, you need to do your research about why creators have set a certain price and how many tokens is the cryptocurrency limited to.
One of the most important things for you to learn is a coin’s market cap. Since all cryptocurrencies are based on an equation or formula, there can only be a limited number of coins per crypto type. That is important for several reasons, but the most relevant for a potential investor is how it will interact with the law of supply and demand.
For example, a coin with a market cap in the billions will eventually have a lot of available coins. Due to its immense supply, it will take longer or require a much higher level of demand to increase significantly in value as compared to a coin with a low market cap.
It’s also important to realize the difference between price and market capitalization. Only looking at price of a single coin or token and not analyzing the market cap and how it compares to it’s competitors can land you in a world of hurt.
Overall Market Share
When looking at the potential value of a coin, you cannot avoid studying its market share, which is its market capitalization relative to the rest of the crypto market and in relation to it’s competitors. This is one of the best indicators of a coin’s health and long-term viability. The bigger a coin’s market share, the more people are using it.
The number of potential users and holders has a tremendous impact on a coin’s viability. Market share and capitalization is what many businesses will use to determine which ones to accept or use as payment. Think of it as the size of a coin’s user base relative to everyone who’s in the crypto game. The bigger it is, the more likely it is to stick around, making it appealing to not just businesses and developers, but to investors as well.
Transparency of Owners
Digital currencies, like any other investments, should be able to present themselves without a tinge of shadiness. Before trying to invest in a token, you need to do your research about the owner’s credibility. What do other third-party websites say about the digital token? What are the things you have read in their terms and conditions?
Do the project owners present themselves as professionals, or are they only called by their first names and their pictures are nowhere to be found? Those are some questions that need to be answered if you plan on investing generously in a new cryptocurrency project.
This criterion is also related to the credibility of the project owners. If an up and coming ICO project has partnerships with other well-established names in the blockchain community, then you are most likely in good hands. A lot of digital investments are backed up by large companies.
For example, VeChain is backed up by PricewaterhouseCoopers. Stellar cryptocurrency is also backed by tech giant IBM. You can try looking for partnerships on the project’s website or doing the research by yourself.
The Team Behind the Cryptocurrency or Token
Much like a startup, the people at a new ICO helm factor into its success. A great concept is one thing, but the execution is quite another, and the people behind the coin are responsible for making the technology behind the coin work. You’ll want to know as much as you can about as many people you can. Don’t stop at the CEO. Look at who they assigned as their Chief Technical Officer, who the developers are, as well as any relevant support groups. See if their expertise fits their roles.
Finding out who they are is often as easy as looking up their website. If there isn’t a list of names, it’s probably not worth your time. Once you have a list, you can take to Google and LinkedIn to check their credentials.
What the Crypto Communities Think
While filled with biased information and emotion, you can learn a lot from joining a few new ICO communities. Finding out what people around the world think can you shape more informed thoughts on up-and-coming coins. However, due to many of these posters being laymen like yourself, you’ll need to treat their ideas and opinions with a grain of salt. Feel free to trust people, but verify their ideas and information for yourself.
If possible, you should join a coin’s specific community. While members will be more positive about the currency, they also are likely to know more than a group without focus would. That will let you learn a lot more.
While a Facebook or LinkedIn profile can reap great information, you should remember that there’s nothing like going straight to the source. Many coin developers and creators have personal blogs where they post their thoughts and occasionally, announcements.
There’s a lot you can learn from these blogs and sites. For example, hearing about upcoming developments and release dates can help you time your purchases to maximize potential profit. It can also give you a peek into the developer’s mind and give you the chance to figure out if these are the kind of people to whom you want to hand over your financial destiny.
Study the Technology
All cryptocurrency is based on some form of technology, and that technology is what gives a coin value. Supply and demand can only go so far when determining how much a coin is worth. It’s the technology and potential behind it that will make it a great long-term investment. Read up on their whitepaper and peruse their website. Keep an eye out for buzzwords and focus on realistic applications of their technology.
Don’t worry if you don’t understand everything on the site at first glance. Knowing technology is a lot like knowing math - most people only need a little bit to get through life. If there’s something that seems core to the coin’s concept you don’t understand, do a bit more research. If you really can’t grasp the idea behind it, you should opt out of investing in it, as you inherently cannot make an informed decision regarding that specific ICO.
Check Out the Competition
Most up and coming ICOs aren’t unique. Many of them have overlapping industries, which means that some are in direct competition with one another. If you see a coin that seems promising, remember that it’s probably not the only one in that industry.
Do your research and check out the competition. Not only will you end up having a better grasp of what the first coin can do, but you may also end up finding a better currency in which to invest.
See Where You Can Trade It
One of the most significant barriers to entry in cryptocurrency trading is finding where exactly to buy and sell their coins. While exchanges are numerous, they carry only a select number of currencies. Beyond that, actual trading pairs can also limited.
Figuring out where you can trade a cryptocurrency helps you in many ways. First, it will tell you whether or not it is treated with respect, as most exchanges will only accept valuable or high-potential coins. It will also help plan your trade deals, as not being able to trade altcoins will affect your strategy directly. Additionally, if you’re a new trader, it will help you decide on which exchange to put down roots first.
For coins that aren’t even out yet, or ones sold through ICOs or initial coin offerings you will need to do some research on an ICO directory or on a top exchange. If an exchange boasts that it’s going to offer that currency before it’s even out, it may be a good sign that the up and coming coin has promise.
Final Thoughts: Always Do Your Own Research
Knowing these things about a coin will often give you enough information to decide whether or not to invest in it. As you dive further and further into the cryptocurrency rabbit-hole, you’ll start noticing trends and patterns that will help you make even more intelligent decisions. However, nothing is truly certain in investments, crypto or traditional. No matter how good an up and coming ICO looks, there’s always the chance that something will creep up and ruin the whole deal.
One thing to note, you will probably make mistakes every now and then. It’s a whole new world. Better to make those mistakes and learn from them early rather than later, when a whole lot more is on the line. Don’t invest more than you can afford to lose and keep your investments safe. Give in to greed, and you may ruin your financial independence and future.
Jumping mindlessly on the trendiest coin may not be the wisest move. By considering these five characteristics of a good ICO will save you from getting financially burned.
*This article is not investment, financial, tax or legal advice. This is the writer’s own opinion. Please seek advice from a professional before investing.