Initial Coin Offerings (ICOs) are prime investment opportunities for crypto/blockchain investors. However, their rewards come with very huge risks. It must be a matter of the more the risk the more the reward!

Nevertheless, investors should be well aware of the risks involved before putting in their fortunes in the projects. If you have a clear picture of how the ICOs operate and what you expect from the ICOs, then you stand a better chance of making the right decision when it comes to choosing the right ICO to invest in and also in identifying scams.

Let us look into some of the risks that you should put into consideration when considering to invest in ICOs:

  1. Absence of proper regulation of ICOs

There are no specific regulatory bodies tasked with monitoring Initial Coin Offering projects. Therefore, the ICOs follow no regulatory requirements. As long as the blockchain team feels it has explained its thought to the crowd that is all.

Also, the fact that blockchain and cryptocurrency are decentralized, there are no regulating organs that govern how the tokens or funds are distributed. Everything is left to the users and the development team.

The absence of proper regulation gives way for scammers to take advantage. Anyone can come up with an ICO as long as they are able to convince people to give in their money. Scammers have taken advantage of this and conned lots of people using ICOs. Actually, due to this, China has hinted at banning ICOs.

  1. Lack of professional vetting before an ICO is released to the crowd

In any financial investment, professional vetting is very important. It gives investors an idea of the financial condition of the company and analyses the business model of the company so as to help the investor in understanding the amount of risk they shall be involved in. By lacking this, ICO investors blindly invest their hard earned money into a company they literally know nothing about expecting the fact that they believe that the blockchain project they are about to launch will be successful.

  1. The token market is driven by speculation

When investing in an ICO, an investor is purely after the tokens issued by the company with the hope that the value of the tokens shall rise. However, it is worth noting that the value of cryptocurrency tokens is driven by a variety of factors and the major one being speculation among the users.

Since crypto tokens are traded on platforms which are not open to supervision, you could see a daily fluctuation in prices of thousands of dollars. This makes the prices very volatile.

Managing the risks involved in ICO Investment

  1. Invest in the amount of money you are ready to part with

The promise of high returns makes investors blind to the fact that it is not a guarantee that the project will become successful.

As a retail investor, if you want to invest in an ICO, ensure that you have no other plans for the money that you set aside for the ICO. If you plan for that money and the Blockchain project fails, you shall be left in disappointments and it could even cripple you financially.

  1. Invest where venture capitals (VCs) have invested

Try to look for ICOs where VCs have invested. VCs are able to do the background checks to ensure that they are investing their funds in a business that has good returns. This way, you shall be guaranteed that the ICO is not a scam and that it also has higher chances of succeeding.

  • Invest in ICOs that have a source code ready for implementation

Serious ICOs, have open source codes that investors can look into. If the ICO has no source code, forget about it. It could be a scam.

Also, get programming experts to analyze and find out if the source code is capable of doing what the development team has outlined in their white paper.

There are thousands if not tens of thousands of ICO projects out there. Blockchain developers have identified a simpler way of raising capital to implement their blockchain projects. And at the same time, investors have also gotten an opportunity to rip big from the blockchain projects through the ICOs.

However, not every ICO is worth investing in. ICOs are known to be poorly regulated and chances of landing into the hands of a scammer are very high. Actually, whenever you are investing in an ICO, you are only gambling on the value of the crypto token issued to you. You only have your fingers crossed that the project will gather momentum and attract customers in line with whatever solution that the blockchain project is trying to solve. Otherwise, if the project doesn’t pick, your money goes to waste and there is no way of claiming it back.

Nevertheless, despite the risks involved, there are still very great chances of ripping big from ICOs. If you correctly identify the best ICOs, then you shall earn yourself some good money when the project picks and the value of the issued crypto tokens rise.

But how can you identify an ICO project that will give you good returns? What is the secret? We shall go through some factors that you should consider when choosing an ICO project to invest in.

Factors to consider when choosing an ICO

  1. Gather facts to prove that the ICO is not a scam

This can be very hard since no scammer will portray himself as one. Actually, scammers are very good at concealing themselves and using very attractive advertisement language that sweeps you off your feet very easily. But as a serious investor, always take your time before investing your hard earned money. You don’t want to lose that which you have labored hard to acquire to some person sited in an office waiting for you to give him the money and then vanish.

A genuine ICO will have a real website that isn’t duplicated anywhere else. Also, the contact and location of their head office are normally well indicated on their official website. Before launching an ICO, any serious developer knows that they should have a whitepaper to explain what they intend to do, what they have done so far so that they can convince the investor why they should give them money. Your main attention should be on the development team.

Go through the information on the development team very carefully looking to see if you can spot any misplaced information like if they went to school which cause they took and what role they are playing in the project to see if they match. Of cause, someone can’t do something they aren’t experienced in and you expect that project to be a success. The best ICOs are those where the development team has given links to their social media since you can be able to follow up on them.

  1. Look at the ICO community

You don’t want to be the only person interested in the ICO. If that is the case then there is a problem. A promising project attracts as many investors as possible. Actually, this is a way of gauging to see if the project has any prospects of picking or not.

You should also look for an open supporting community. There should be a social group like a telegram chat group or Facebook, Reddit or Twitter where you can interact with your fellow investors. That way, you will be able to identify any concerns raised by other investors.

You should also ensure that the ICO project does not have bounty threads or posts since they could be used to spread propaganda information which does not give the clear picture of the entire blockchain project.

A genuine ICO project will have the development team send out press releases and take interviews in the media houses to try and sensitive the people about the project and explain to them what they want to do so that the people can get interested in the project. There is no need for bounty threads or posts.

  1. Confirm the stage of the project

Any serious blockchain project should have a roadmap that clearly outlines the timelines for achieving the various milestones along the development stages.

Before asking for funds through the ICO, the developers should have done something. They don’t just ask for money to start everything. No! There has to be proof that the project is indeed a serious project and that it has already started and it has reached a certain stage.

If possible, find an ICO that is as close as possible to the launch of a fully functioning blockchain project.

You should never invest in a blockchain project that hasn’t written its source code. The code should be ready waiting for implementation.

  1. Look for Venture Capital (VC) Investments

VCs will never invest in a project that has the slightest signs of being a failure. Therefore, if you invest in an ICO project with an established VC, you are guaranteed that the project will pick.

And any blockchain that gets a venture capital investments will gladly display it for everyone to see since it gives other investors’ confidence. But also be careful to confirm if the VC is well established.

  1. Carefully read the white paper

The white paper will enable you to know exactly what you are investing in. by reading through the white paper, you shall know what the entire project is all about.

If you find the project viable, then why not invest? However, you should take your time and even do research into what the blockchain project claims they want to tackle. Is it something that will interest the community? Will it gain the attention of the intended audience?

A good white paper will outline the legal framework between investors and developers. It will also outline the team behind the project and their contact. You should also look for information on the token distribution. The token distribution should be in line with the roadmap. This is because a certain amount of funds will be required for every phase of the roadmap.

For security reasons, you should also ensure that the funds are stored in a cold wallet or in an escrow wallet.

  1. Analyze their source code

The source code should be open source code. If it is not open source code, then that is a red flag. A genuine ICO project will be careful to put everything in a transparent manner.

Go through the code or find an expert to go through it and identify if it is able to meet the challenges being addressed by the blockchain project.

Conclusion

After evaluating the ICO project based on the above factors, you should be good to go.

However, you should remember that ICOs are poorly regulated and it could be hard to ever get your money back in case the projects fails. Therefore, it is advisable to invest an amount that you are ready to part with. You should not have too much attachment to the money that you invest. If that is the case, you better not invest since if the project fails, then you will be very heartbroken and you could easily be depressed.