6 Things to Look for Before Investing in an ICO

Option trading

An Initial Coin Offering (ICO) is a fundraising means – a form of crowdfunding activity – in which a company attracts investors. Firms partaking in this issue digital “coins” or “tokens” in return for a payment from the investors.

An ICO is very similar to an IPO; if you understand one, you can easily understand the other. The main and the only difference is that instead of selling shares in the company, startup companies using ICO to sell crypto-coins in exchange for money.

1. Understand the Team

You have to try to find out everything you can on the team behind the ICO. The more difficult it is to get information on them, the more suspicious the ICO. Try googling team members individually, see what kind of projects they have been involved in previously, what their experience is in other crypto-centric projects, and what kind of impact they have made on that project.

2. Usage of Funds

You must also look for information on how the funds will be used. Reputable cryptocurrency companies will present a detailed list of projected expenses. In contrast, a company that is seeking to defraud investors will never reveal details about how they plan on using the funds. And even if they provide the details, it would be too vague.  

3. Community Feedback 

ICOs will be announced on community forums whose members will include a large number of cryptocurrency enthusiasts and investors. You should look at how the members respond to the news. Are they excited? Or are they not even bothered? 

A lack of interest is usually a sign that the company will not meet with any initial success. Visit the social media pages of the company and look at how people are responding. Now, be wary of fake comments and responses which will try to make the ICO look like a once-in-a-lifetime opportunity.   

4. VC Interest

Venture capitalists are famous for lending their support for bright prospects quite early on. You will (or should) have access to the names of prominent investors on the company website. If you have some well-known names listed out, it gives you some reassurance about the project’s viability.

5. The Cap

When the whole crypto ICO wave began to take the world by storm, you really couldn’t make out the difference between an open or hard cap since the demand level was crazy.

An open cap simply means that investors are allowed to send an unlimited amount of funding to the project and get the corresponding investment value through a high number of tokens.

The downside of this is that it pulls the value of the token down south. When you have too many tokens in circulation, your token deteriorates in value owing to the fact that there’s less demand for it.

6. Beta Preview 

Find out whether the company is offering a beta preview of the coin. It can be anything from a full-fledged beta client that you can download and test, to a simple YouTube video that shows the current stage of coin development. 

Whatever it may be, a brief glimpse of the product is a good sign since it shows that the company is actually developing something and not just talking about a plan for a coin.

Final Thoughts

Investors who are looking for the next big crypto score are attracted by the companies by releasing their own digital currency in exchange for a crypto-coin or fiat currency. Being an investor, you need to be careful that you aren’t just falling for shiny promises.

Why Check Market Cap Over Coin Price

Bitcoin

Any seasoned cryptocurrency trader or investor should know the concept of coin price and market cap. That is not the case though; unfortunately, most investors are hooked on to just the coin price. Focusing on just the coin price is not the correct way to judge whether you should invest in a particular cryptocurrency or not. The market cap of the currency you want to dabble in should also be taken into consideration in order to get a fair picture of the market.

There is more to the cryptocurrency market than just making the right call and the typical buy and sell strategy that most people seem to adopt. With the consistent surge in the value of cryptocurrencies, many first time investors have mistakenly assumed that they only need to invest in a good currency like Bitcoin and their investment will automatically go up. This is a very naive and quite uninformed idea. 

Last week we talked about the aspects that you need to consider when thinking of investing in cryptocurrencies like legal discrepancies, security, soaring values, etc. There’s one more thing that newbies don’t even consider.

Most newbies are absolutely clueless about the inner workings of the market, unlike the seasoned cryptocurrency enthusiasts. To help you with it, let’s talk about coin price vs. market cap.

Why Check Market Cap Over Coin Price

If you don’t know what market cap is then let me tell you. Market cap or capitalization is a well-known metric for traditional securities but it has unique implications in crypto; it is a measure of the value of security. 

The market cap usually consists of multiplying the number of outstanding stock shares by the current stock price. In crypto, this practice is defined as the circulating supply of tokens multiplied by the current price.

In simpler terms, to get the market cap of a particular cryptocurrency, multiply the value of the coin with the number of coins in existence. So, when you decide to purchase cryptocurrencies, look at the percentage of market cap you are buying so that you know you are making an informed decision based on the market.

For example, suppose that a particular coin is valued at $2, and there are a million coins in circulation. As such, the total market cap of the coin comes to $2 million. And if you plan to invest $10,000 into this cryptocurrency, you will essentially be buying 0.5% of the market cap.

You sure can learn a lot about cryptocurrencies and their standing just by checking market caps. Bitcoin is still in the top running with roughly 55% of the total crypto market cap. It is also the reason that people who don’t know much about the market have still heard about Bitcoin. Many don’t even know that there are other cryptocurrencies.

Bitcoin is the most valuable coin; it is roughly three times as valuable as Ethereum. Ethereum has the second-place running in value but there is still a huge gap between Bitcoin and Ethereum. The same thing goes for Ethereum and third-place Ripple – also a large gap between them. 

Final Thoughts

Understanding the value of market cap and using the information can effectively make you one of the major players in the market. It is a quick way to gauge a coin’s value. So, if you are new to the game, be sure to always check the market cap of a cryptocurrency before you decide to bet your money on it.