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ICOs have become hugely popular, and some have been extremely successful. From huge successes to massive failures, and a large number worthless ICOs that turned out to be scams, ICOs having been appearing in massive numbers over the past eighteen months. It can often be hard to tell whether or not ICOs are a bad investment, but things like the market, timing, and risk can all determine whether or not to invest in ICOs.
There is a risk of scams.
Firstly, it must be stated that not all ICOs are scams – in fact, many ICOs are legitimate. But that doesn't mean there are no risks of investing in ICOs. The problem is that it has become increasingly difficult to tell the difference between a legitimate investment opportunity and an ICO scam.
The second problem is that many ICOs that were legitimate at one point turned scam after. This occurred due to the 2018 Q1 crypto crash and following bear market. Many people decided it was better for them to sell the Ether they had raised and just vanish. This, of course, left investors with nothing. Again, ICOs are a bad investment, or at least can be, if you are not careful.
There's the risk of Initial Exchange Listing loss.
One of the biggest problems with ICOs is that there are two very different types of primary investors. The first group looks for very short-term returns, not looking at the technology and intend to sell on initial exchange listing. The second group are those who truly believe in the project and expect it to be a long-term investment.
The moment most tokens hit an exchange for the first time, there is normally a huge pump in valuation as the first group sell off their tokens for profit. However, the majority of initial listings are followed by a quick crash – often to below ICO token valuation. For those who wanted a long-term investment, this may not be too bad. For those who wanted quick returns but missed the few minute pump, it could be quite disappointing as it could take a long time for the value to reach what the coins initially cost again.
The ICO could be too good to be true.
As the saying goes, if something looks too good to be true, then it most likely is. This is the case with ICOs too. There are many ICOs that promise things that they simply can’t deliver, which is an example of why ICOs are a bad investment. Make sure you think twice, and read thrice, before investing. Initial coin offerings often seem much better than they really are.
Think about IPOs.
Think of ICOs as traditional IPOs, only using cryptocurrencies, not fiat. Most initial public offerings are of companies that already have a working product, a clear history, and more importantly are already profitable – or at least transparent.
Most ICOs, on the other hand, are from companies that have no working product, no history, and are far from profitable. Such high-risk investments are rarely going to pay off, however, they are a great way for raising funds for nefarious or legitimate reasons.
IPOs can be potentially smart investment opportunities, regulated on international stock exchanges, but ICOs are a bad investment choice.
It is believed that "99% of cryptocurrencies will fail."
Anyone who spends any time reading up on everything you should know about cryptos before investing will have read something along the lines of “99% of cryptocurrencies will fail.” The truth is that the people who are saying this are probably not wrong. Although blockchain technology is not going anywhere, we are right at the beginning of its development – most of the ICOs going on today will be forgotten in a couple of years, if not by tomorrow. The ICO market is over-saturated, and there are only so many projects who will survive.
Think about the amount of tokens.
Too many people begin investing in cryptocurrencies without doing their homework. Before you send your BTC or ETH to the next-best-thing-in-crypto, make sure you understand what you are getting. Just because one ICO offers 100 tokens per 1ETH and the second ICO offers 1,000,000 tokens per 1ETH does not automatically mean you are getting a better deal with the second. Smart contracts can be written to allow a total of ten tokens or 10trillion tokens, the price value per token is obviously going to be different assuming a similar market cap is achieved during ICO.
The amount of tokens you receive is relative to the total amount of tokens in circulation – and total potential amount if there is a hard cap. Make sure you understand what share of the circulation you are purchasing in the ICO and don’t buy something just because it looks like you will get a lot of tokens, because the amount of tokens means nothing.
Beware of phony white papers.
There is nothing better than reading through a thoroughly thought-out, well-written white paper. It includes everything from how the project is going to share its tokens between the ICO crypto investors and the project developers, it has a clear road-map, and the product is the best thing since sliced bread – right?
Unlikely. While it’s not impossible that you have stumbled upon a precious gem among the rocks, the chances are the same as exactly that. Finding a real precious gem whilst looking through rocks. Don’t be fooled by intellectual writing and good ideas on paper. There are great blockchain investments that have proven themselves already, why risk your crypto on somebody's creative writing?
It could just be wrong timing.
The market has seen so many problems with ICOs in the past twelve months that people are getting sick of seeing them. There have been too many scams, too many regulatory blocks, and too much volatility making ICOs a bad investment choice right now.
In the coming years once regulations are clear, and the market isn’t being flooded with scams – then maybe ICOs will have a little more respect again. However, don’t expect this to happen anytime soon. If you want to invest in cryptocurrencies, it’s risky enough investing in established ones, why take the risk with ICOs in the current market?
There are many regulations.
American citizen? Well, in that case, you can forget it in most cases. Unless you happen to be an accredited investor – then the SEC says you cannot invest in ICOs.
Why is this? Well, this SEC deems ICO investments as securities. Unless you happen to be an accredited investor (in which case, you know all this) you can’t invest in an ICO. There are numerous loop-holes being worked out by people, but until regulations are changed US citizens can forget ICOs.
Are you looking to gamble? Stick to Vegas.
If you like gambling with your money, then you are better off sticking to Las Vegas. Not only are you much more likely to see some money return there, but you are also more likely to have fun. If by chance you like throwing money in the trash hoping that a huge wad of cash is going to jump out of the trash-can one day, then maybe ICOs are for you. You never know, stranger things have happened. ICOs are a bad investment choice right now, the odds are against you ever making your money back.