It’s important to analyse ICOs before you invest so that you can identify the best opportunities. As an investor, you will be looking for a return on investment (ROI) even if part of the reason for getting involved in an ICO may be because you like the idea.
There are literally thousands of ICO’s launched every year. Some of them are great ideas but may still fail. So investing is not a decision to be taken lightly. Investing is all about making an informed decision. There may be lots of good reasons to invest in an ICO. There will also be lots of good reasons not to invest. It’s important to do your own research to see if a particular ICO is going to be suitable for your own investment.
When you’re participating in an ICO and buying some of its coins, you feel alright with the choice. Rational investors believe their investments will increase in value at some point or another.
If you strongly believe something will decrease in value in the short-term, but see it rising in the long-term value, then the appropriate decision would be to postpone your investment until the asset decreases in value, buy at a cheaper price and ultimately get a better ROI.
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 and sell it for a profit on the short-term price increase.
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, there are four key fundamentals that you can analyse to help refine your choice or to evaluate an ICO you may be interested in.
What is the team behind the ICO? 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.
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 big warning sign.
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 then you need to ask why they aren’t doing that.
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 it is not required will cause a project to eat away at its funding.
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? The product or service will no longer be cheap if the associated token is expensive due to speculation, and vice-versa. This is another big warning sign.
What does the ICO plan to do with the funds it raises? Will running a successful ICO give them the start they need to launch the business? Or is the exit plan a payoff for the team starting the project?
Have a close look at where any proceeds will go. The majority of funding should be reinvested 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 badly.
Remember these four key fundamentals when you analyse ICOs to help you identify the best opportunities.