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How to analyse ICOs

In the investing world, there may not be a worse feeling than putting your hard-earned savings into a fledgeling project and helplessly watching it all slip away.

As you become sick to your stomach, you might start blaming others. Maybe you feel slighted, scammed or misled, but the good thing to know, however, is that you’re not really helpless as you have the ability to analyse ICOs before you invest. Playing the victim won’t get you where you need to be.

You’re always in control, and you need to learn how to harness your knowledge early on, analyse investments, and make informed decisions. Throwing your money around haphazardly is a recipe for disaster and heartbreak. However, we’ll get to that a little later on.

Why it’s important to analyse ICOs

When you’re participating in an ICO and buying some of its coins, you feel alright with the choice. After all, why would you make a decision to invest in something you didn’t believe in? Rational investors believe their investments will increase in value at some point or another, and you’d be foolish to go against this rule.

If you strongly believe something will decrease in value in the short-term, but see it rising in long-term value, then the appropriate decision would be to hold off on your purchase until the asset decreases in value, buy at a cheaper price and ultimately get more bang for your buck.

If you see short-term gains, but believe the long-term outlook is bleak, then the rational investment decision would be to purchase the asset at that moment, sell it for a profit on the short-term price increase and get the hell out before things drop below your purchase price.

Unfortunately, things aren’t quite that simple. The market is irrational and extremely volatile, and many investors are irrational as well. People can try all they want, but nobody will ever be able to accurately predict the ebbs and flows of the market with 100% accuracy and certainty. Some people might develop certain ‘guru’ methodologies that allow them to make more informed decisions and achieve better results than others, but no one is perfect, and many people are far from it.

The unpredictable nature of the cryptocurrency market, paired with a constant stream of new blockchain projects, has made it nearly impossible to thoroughly and effectively analyse ICOs out there.

However, being prudent when investing in an ICO, and deciding which projects are worth giving the light of day, will save you plenty of time and grief in the long run. For that very reason, I think it’s incredibly important for new investors to learn how to analyse ICOs. Here are a few tips to help you out.

Team first

A great idea will go nowhere without a solid backing and someone to make it happen. Have a good, close look at the team and their track record from independent sources. The ICO’s team should be made up of real, reputable people  Team members operating under aliases should not be trusted, while a team full of experienced high achievers is a huge plus.

Blockchain necessity

At the heart of each and every good ICO is the blockchain. A worthy one should have a sound, valid reason to use blockchain technology, and a plan to use this technology to the best of its ability. If an ICO isn’t using blockchain technology beyond simply creating its tokens, that’s a red flag right then and there.

However, even if an ICO uses blockchain technology beyond simply creating the tokens, the need should clearly exist. If an existing technology, like a secure database or electronic cash transfer, can do a better job, walk away.

Blockchain technology is powerful and enables functionality that has not previously existed, but that functionality sits within a very narrow niche, and trying to use it where unrequired will cause a project to eat away at its funding.

Sound economics

Remember the laws of supply and demand when analysing ICOs.  What will make the coins/tokens valuable? Is the token’s value proposition somehow tied into offering cheap and affordable access to some popular product or service? If so, steer clear. You can’t have your cake and eat it too. The product or service will no longer be cheap if the associated token is expensive due to speculation, and vice-versa.

Responsible decision making

What does the ICO plan to do with the funds it raises? Will running a successful ICO give them a leg up in everyday business efforts, or is the exit plan a big, fat paycheck?

Have a close look at where any proceeds will go. The majority of funding should be reinvested and dumped back into the business.  Never trust any ICO that spends more on marketing than it does on development and delivering value. A quick calculation will often show that raising $100 million, creating $10 million worth of product and  turning around and selling it to a market share worth less than $1 million is going to end in tears. Invest wisely.

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