Why I Won’t Invest in ICOs

Initial Coin Offerings (ICOs) are a common way for cryptocurrencies to raise money. However, the ICO market reeks of fraud and scams. I would not risk any significant amount of money on ICOs.

ICOs have features that make them a unique combination of a crowdfunding campaign and a stock purchase. They have grown in popularity as the lucrative early investment in Bitcoin has made many millionaires and some billionaires.

Tremendous returns of 10x and even 100x are theoretically possible but unlikely. Unfortunately, as the legitimate investment in cryptocurrencies has skyrocketed, so has the number of scams that attempt to take advantage of crypto investors.

High Percentage of ICOs are Scams

One study, in particular, makes it abundantly clear that investors in ICOs should at the very least be very cautious and complete their due diligence before investing. A study of ICOs by the Statis Group prepared for Bloomberg (Dowlat, 2018) found that 78% of ICOs were identified as scams. About 4% failed, and 3% went dead. Only 15% went on to trade on an exchange.

Each investor has their a level of risk that they are willing to take.
While I expect extreme volatility in the cryptomarket, I don’t want a crypto asset to be worth nothing or close to nothing after having a value on exchanges.

High market cap cryptocurrencies are much less likely to ever go down to zero value after months of being offered on exchanges.

Market caps in the tens of millions (medium market caps) tend to have an increased likelihood of volatility and a somewhat more likely but still very unlikely to ever equal zero after several months of being offered on multiple exchanges.

Of all cryptocurrencies, ICOs are the most likely to ultimately become worthless.

Even if a new cryptocurrency has great technology, they may not have great marketing. Without proper marketing, ICOs are much more likely to fail or decline to zero after being listed on an exchange.

A follow-up study should be done after ICOs are three months, six months, and 12 months old.

I will invest in a cryptocurrency with a proven track record, great technology, and good prospects for future growth.

Some people are still willing to invest in ICOs, even knowing the statistics.
If you are one of these people, be careful and don’t rush to invest.

Do Your ICO Research

If you do decide to invest in ICOs, be cautious. Do your research. Make sure all the board members are real people with legitimate LinkedIn and Facebook profiles and posts that mention their position on the board of that soon-to-be-offered cryptocurrency.

Read all you can from the Crypto community about that particular company and ICO. Usually, the crypto community is pretty good at spotting scams.

Read the brief about the ICO. It should tell you what problem the cryptocurrency attempts to solve and why. A well-written brief is less likely to be a scam. It should also tell you what differentiates it from other cryptocurrencies, also, what makes it import and useful.

You should see what others in the crypto community are saying about it. Look for articles by people not at all affiliated with the ICO.

So, if you do choose to invest in ICOs, you should know what the ICO is about before you decide to invest.

Reference

Dowlat, S. (2018, July 11). Cryptoasset Market Coverage Initiation: Network Creation. By Statis Group. Prepared for Bloomberg. https://research.bloomberg.com/pub/res/d28giW28tf6G7T_Wr77aU0gDgFQ