Can you Make Money from ICO? The same question would be relevant to asking can you make money from IPO? In both cases, the answer is yes and no. Both an initial coin offering as well as an initial public offering are venture capital investments. Anything and everything can go right or wrong with the way in which funds raised are used and invested.
However, the major difference between the two is that whilst IPO’s are high-regulated and have to conform to SEC or other relevant bodies, ICO’s are still unregulated and basically are the wild west of crowdfunding.
This does not mean that ICO’s are illegitimate – it simply means that they are relatively new (first ICO was launched in 2016) and so far there is no legal body to structure them.
Can You Make Money From ICO?
We have recently heard some fantastical stories about making crazy money on successful ICO’s. Basically, if you enter the market at the initial stages of an ICO, you presumably get in at a cheap price. If and when the ICO is successful, you cash in your profits by selling at a much higher price. The token price of an ICO can increase significantly if an ICO hits success.
Likewise, we have seen some less successful stories where team members simply evaporate after they collect funds from an ICO. Naturally, the token price plummets. And you actually end up losing your investment instead of making money from ICO.
Therefore, if we are looking at how to make money from ICO – we certainly need to be looking at some important points which will reduce our risk exposure. Knowing your risk and doing proper due diligence is the only way by which to enter into a new ICO investment. You must also have an open mind. Knowing that this is a high-risk investment, you should never invest money that you cannot afford to lose.
10 Relevant Points to Watch out for if You Want to Make Money from ICO
An ICO or Initial Coin Offering is the creation of a dedicated token for a specific project.
The developers give clear vision in their “White Paper” as to why they wish to raise the venture capital, how they will use the capital. The people inviting investors to fund their project explain in detail how they expect to make money from this venture. If the venture is successful, then the price of the token will rise. This is the main fountain of income and how you can make money from ICO.
However, as pointed out earlier, ICO’s are largely unregulated. Switzerland is possibly the only country that is building a legal framework supporting ICO’S. China has banned ICO’s and decreed them downright ILLEGAL in September 2017 – largely because of fraudulent developers who simply made away with the money and disappeared. Scammers are rife with ICO’S and therefore if you are hoping to make money from ICO – here are some very important points to watch out for.
#1 Research the Team behind the ICO
A serious ICO will have a development team as well as an advisory board. The development team are the members who should have experience in the field of the “ultimate use” of the ICO investors’ funds. Make sure that you research each individual well. Ensure that they have a time proven track record of the professed expertise. Check out their LinkedIn profiles and see that they have endorsements for their skills. Ensure that their skills are relevant to their ICO proposal.
The same goes for their advisory Team. A serious team will have lawyers, auditors and business management advisors on the team. They will act as “regulators” and who will ensure that the funds are properly used for the proposed venture. Do your due diligence and check them out on business media pages. No serious company will risk using its name if they are aware of any shady deals.
The Team and the Project are crucial to the success of an ICO and if you are hoping to make money from ICO, then you must ensure that they are both solid and sound!
#2 The Project Itself – The Business Plan
Are you convinced that the proposed Project/Product is one that will eventually be successful and will push up the price of the tokens that you are going to invest in? Is the Business Plan which the team is proposing a good business plan?
Think of whether you would have come up with the idea yourself, whether this would make sense. Are you convinced that there is money to be made with this particular venture? Is it a better alternative to just investing directly in Bitcoin or Ethereum itself?
Here is where you should also check out the competition. If there are many vying for similar projects in the field, you can see historical successes or failures. If the idea is a completely new one, the risk is higher but likewise, the potential for success and price increase could also be high. Therefore, evaluate the ICO as a business proposal on its own merits before hopping along the bandwagon.
Be sure that you are investing in a mature product.
#3 The WhitePaper
The White Paper is where the developers give substantial detail on the ideas behind their project. This will include a step by step vision of how the funds raised will be invested.
If the project is service orientated you will need to have specific dates when the websites from where the services are accessible are anticipated to kick-in. If the underlying project is a brick and mortar business, you must ensure that there is going to be an audited track on the performance.
Read the White Paper even if it may be long and boring. Consult with a lawyer on points of law that you are not clear about.
#4 Will the ICO have Unlimited Tokens or Does it Envisage a Hardcap?
Participating in ICO’s with no hard cap can mean that you will not easily make money on entering early in the venture. An ICO with an open cap means that investors can continue milling funds into the project’s wallet. This will result in having unlimited funding for the project. It also means that the tokens are not so unique and therefore may have less demand in future. If you are looking at making money from ICO then you want your ICO to have a hardcap and be limited and unique.
One example of a hugely successful ICO where the price advantage was not realized is Bancor. Bancor sold $150 million in just three hours. However, the investors did not see any percentage gain by being early birds. The price actually dropped marginally from the original $4 per token to $3.80. This is something that you need to bear in mind with ICO’s that have no hardcap.
#5 Early Bird Advantage or Wait and See Conservative Investment?
Plenty of ICO’s offer price advantages to early bird investment. This can be a very favourable way of making money from ICO. Buying cheap and selling expensive is a classic way to making quick profits. However, serious ICO’s are not envisaged as a “Pump and Dump” investment but more of a long-term profitable investment.
Therefore, another way to participate in the ICO market will simply be to use the “wait and see” strategy. Despite the fact that this is a more conservative approach and may not give you the price advantage that you would be hoping for, it is a safer approach to make money from ICO.
What makes an ICO shine brighter than others? If an ICO helps solve a problem – then you could be looking at the right ICO to invest in. As with traditional economies ICO teams that are looking at solving a problem for eventual business growth – are serious about their venture – and eventually your capital.
For example, ICO’s that plan to use blockchain technology to cut our middlemen, unnecessary expenses, and facilitate investment in tangible assets solve many problems. Consider carefully the contribution an ICO will give to problem-solving.
#7 The Product RoadMap
Do the developers have a long-term vision. How are their strategies for future growth mapped out? A team that is committed to understanding the long-term development of the market by doing proper market analysis has a higher potential for success.
Some ICO’s can take up to a few years to execute. You may need to wait a while to see your actual ROI. However, the benefits play out well when there is long-term planning.
#8 Resilience and Legal Understanding
You will want to invest in a resilient team that is ready to adapt to changing regulations and market conditions. Make sure that behind the development team, there is a sound and solid legal team that will advise and guide in the right direction.
#9 Transparency and Audit
If you are looking at making money from ICO ensure to invest in an ICO where transparency is their utmost priority. Check the white paper on declarations of how the funds raised will be audited to ensure that the money is channeled in the correct and proper investments.
Although getting in at the right time is quintessential with ICO’s and early bird advantages are a great incentive to secure a good price – always make sure that the valuation of the token makes sense. The market price of the token will be determined soon after the ICO ends. Later when the project starts developing. If you are going to commit capital at an early stage, you must make sure that you are getting an advantage on a properly valued token.
Can You Make Money from ICO – Conclusion
As with any other new business, the potential of failure or success depends on many factors. With an ICO you have the added exposure of ensuring that you are not investing in a scam.
The potential windfall profits you can make from an ICO is LEVERAGE. Getting in at the right time in a startup gives you leverage due to price advantage. Later if the project goes on to become successful, you can make potentially get a passive income from returns and also capital gains on the price of the tokens.
Like stock options, when you are first considering an ICO investment, you must enter with an open mind. Be prepared to wait in order to see the full benefits of your leverage.
If the project succeeds you may be looking at very handsome returns. However, you must also be prepared to lose your capital if the project sinks. Therefore, using the above ten flagship points to do proper due diligence is absolutely a must. Be armed and make informed choices rather than emotional and haphazard gambling.
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