Five things to know before investing in an ICO

Comparatively speaking, other means of venture capital investment only brought in around $1 billion during that same timeframe, and ICO funding grew over 20 times from the year before ($240 million in 2016).

As you can see, ICOs have quickly become the preferred method of fundraising for blockchain startups, and investors are starting to jump on the train as well.  In fact, the potential for great investment returns may have you seriously considering throwing your investment money, and maybe even a little bit more, towards these hot, new and exciting opportunities for quick growth and wealth multiplication.

However, while some ICOs do make great strides that reward early investors in droves, many investors simply do not fully understand what they’re getting into.  With this new, and potentially confusing, method of fundraising coming to the forefront, it’s important to be informed about your options as an investor. For that reason, here are five things to know before investing in an ICO:

1.    It’s untraditional

You may have some experience investing in other cryptocurrencies, buying and selling through online exchanges. While this is a good start and will help you familiarise with ICO investing, there are several differences between traditional cryptocurrency investments and investing in an ICO.

You’ll have to purchase the tokens in a different way, follow different procedures, and take more precautions when entering the unregulated land of ICO investing.  That’s not to say that you should steer clear altogether, but do know that things might be uncomfortable at first.

2.    It’s not for the faint of heart

There is a lot of risk involved in ICO investing. A high percentage of today’s ICOs will be complete failures within a relatively short period of time, and you run the risk of losing all of your investment money.

You might think your cryptocurrency holdings are volatile, and they are, but just wait until you see the price swings of some of the ICO projects you could be invested in. You need to rid yourself of all emotional decision making when investing in cryptocurrency, and that’s even more applicable with ICOs. Develop a system and stick to it. Trusting in your investments and making decisions based on pre-set targets over the long haul will help you overcome the sudden losses.

3.    It’s not for the impatient

You need to be patient with ICO investing for a variety of reasons. It’s not something you should rush into, and your decision-making process should be fine-tuned and methodical regarding ICO choices.

There are so many different ICOs to choose from. Investing willy-nilly would be a big mistake. Be patient with your research and really take some time to sit down and uncover the top ICO projects that you identify with.

Once you have a shortlist of ICOs that you want to participate in, the patience must continue. It will take time to follow individualised ICO policies, register and pay for ICO tokens. Then, once you’re paid, you’ll have to wait for the ICO tokens to reach your wallet. However, you’ll often be forced to hold coins (to prevent early sell-offs) and unable to sell until after a certain date. Additionally, even when you are allowed to sell, it can take time for the token price to increase, and grow your investment.

If you’re impatient right now, investing in ICOs might help you develop that muscle. There’s really no other way to invest in these projects.

4.    Research is essential

Due to the high failure rate and lackadaisical regulations, it can be harder to pick out promising projects from a list of ICOs than a selection of cryptocurrencies listed on exchanges. However, the right amount of research can lead you to the promised land.

Before investing in an ICO, you must recognise this, and you need to be willing to put in the time to find the most promising projects. Consider the research itself as an investment in your investment. Without solid knowledge guiding your investment decisions, all will likely be lost. Think of ICO investing like any other long-term commitment; you need to be damn sure you’re making a choice you can be proud of into the distant future.

5.    You can hit the gold mine

It may seem like I’m being overly cautious by warning you of all these potential ICO pitfalls and dangers. However, recognise why many people invest in ICOs in the first place: there is a lot of money to be made (or lost) in this space, and the future of blockchain technology looks bright. Identifying, and investing in, a revolutionary project at its earliest stage is a surefire way to reap huge financial returns.

ICO investing requires patience, extreme foresight and a strong gut. Fortunately, all of these traits can be developed over time, but coming in with the right expectations will set you up for long-term investing success.  It’s possible, but you’ll have to do the work first.