While an unprecedented surge in prices of popular cryptocurrencies and bitcoins was making headlines all over, the popular ICOs were not far behind in promising lucrative returns to their investors.
By the end of the third quarter of 2017, over $3 billion had already been raised by 200 popular ICOs. But all was not calm.
What has started to emerge from the hustle and bustle of the rapidly evolving ICO market is that 2017 saw some of the biggest ICO scams and hacks. Yes, real investors lost a good deal of real money.
Should this scare a prospective investor off? Well, that depends on your ability to identify the good, the bad and the ugly ICOs. Here are some insights on how to do just that.
Millions lost to scams and unverified security breaches
Not all that glitters is gold and not every ICO investment is worth a fortune. One of the biggest scams in the history of ICOs is Onecoin, which duped its investors for over $350 million. The latest Bitconnect scandal has also added to the growing list of 'scammy' companies.
Here’s the thing. Whether you are a crypto enthusiast or an individual investor in ICOs, it is important to know what you’re getting into before making any investment.
While the ICO graveyard is starting to fill up, here’s how to avoid investing in bad ICOs in 2018.
ICOs are start-ups
Remember that token offerings are just means of raising capital for the underlying start-up.
As such, it’s important to remember the track record of start-ups – most, upwards of 9 of 10 – fail.
The same can be said for ICOs. And while it may be too early to tell, savvy investors will be mindful and weary of the odds, and invest accordingly.
Before making any investment make sure you understand what is being promised by the company or the start-up conducting the ICO.
With a global market we’re starting to see cultural differences and shifts potentially emerge as different cultures may have different meanings of 'truth' or “intention”.
Any unrealistic promise that can not be verified or backed by proof, logic or solid business metrics is a serious red flag. Genuine ICOs have well-defined deliverables coupled with an evidence-based plans to achieve those deliverables.
A genuine company trying to raise funds through a genuine token offering will undoubtedly have something to verify their claims on.
Here’s where it gets a bit difficult. Popular social media platforms are fantastic channels to disseminate information. However, they’re also fantastic channels to spread ‘fake news’ and unruly claims.
You’ll have to engage with the group, monitor the chatter, and pay attention to the community to find the social proof points and overall sentiment about the ICO.
Instead of disregarding negative opinions and concerns you should, instead, try to understand them, and verify if the founding team are addressing the questions appropriately.
The white paper
Just about every ICO has a detailed white paper that it makes available to its investors and potential investors.
If you’re thinking about spending thousands on an investment in a start-up company half-way across the world, with no verification, proof or connection to the founders, you’ll want to go through the whitepaper in detail.
If there are any discrepancies in the claims they are making in their whitepaper, if there are contradictions or mistakes this should raise more red flags.
You’ll also want to make sure that all the details regarding the token sales and the investments are mentioned, so you have a clear picture as to where and how the capital being raised is spent.
A roadmap is a must
Every startup should have a proper roadmap or plan. That plan should detail events detailing how and why they are conducting their ICO and how future events and scenarios will affect their plan.
If an ICO doesn’t have a detailed roadmap – it is much less likely that they will succeed in managing your money and delivering a return.
While it is extremely difficult to get good insights on ICOs, founders and plans before you invest, having an eye for details, not falling for unrealistic promises, and becoming an educated investor is the key to faring well in this ‘Wild West’ of ICO investing.
Cahill Puil is the managing director of Toronto-based Byte Media Group.