How to Evaluate an Initial Coin Offering

How to Evaluate an Initial Coin Offering

Cryptocurrency – virtual currency that uses cryptography for security – is the new global phenomenon that is redefining the financial world. In operating independently of a central bank, these currencies are, by their very nature, protected from government interference or manipulation. Consequently, from that perspective, they are extremely secure. For aggressive investors seeking a high return on investment, Initial Coin Offerings (ICOs) can offer a very promising venue.

One of the primary ways to invest in the crypto finance marketplace is through an ICO. An ICO is somewhat similar to an Initial Public Offering (IPO), with the major difference being that the capital in an ICO is raised in cryptocurrency. Because of the commonalities that they share, evaluating an ICO requires some of the same basic due-diligence efforts as an IPO. However, with an ICO, there are additional avenues that need to be explored.

Whether it be an IPO or an ICO, assessing the company’s business plan is key. In the “crypto” world, this plan is referred to as a “white paper.” A successful ICO is usually supported by a detailed white paper that includes, at a minimum, specifics on the underlying technology, coin distribution, the price of the token, the company’s roadmap, and timeline of the project.

Thoroughly researching the team members leading the project, particularly those responsible for making decisions, is also critical. What is their expertise with cryptocurrencies? How much relevant experience do they have, particularly with blockchain? Are there any red flags concerning their credibility?

With an ICO, thorough due diligence also must include evaluating the company’s business plan with regard to token distribution. A reasonable distribution is necessary for both developer and investor. If the major share of the tokens goes to investors, they gain greater voting power. Conversely, any ICO that is offering its developers a higher percentage of tokens should be viewed with extreme caution. This can imply self-serving motives on the part of the company.

Something else to consider is whether the ICO has an open cap. This means that there is no limit to the gathering of funds – which can result in the coin eventually losing its value in the future. This is similar to the concept of dilution in the financial world. As more and more tokens are issued, the investor’s share diminishes in value.

BitcoinTalk.org is an excellent resource when researching a new ICO. It is the leading information forum on all crypto and blockchain events. Questions can be asked via the comments thread. The site’s “Bounty” page enables investors to keep an eye on projects that unnecessarily place emphasis on the bounty. Checking the number of tokens that users are entitled to for each contribution will also provide information about the media channels promoting the project. Due-diligence efforts should also include searching social media for all news and articles pertaining to the ICO in question.

Strategic Coin is your go-to source for crypto market research insight and education. Whether you need help understanding the basics of blockchain technology or desire to read an in-depth analysis of the latest ICO or token launch, Strategic Coin will provide you with the information you need to take advantage of market opportunities within the crypto space.

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