ICO is probably a term that you have come across numerous times when researching cryptocurrency and have maybe wondered what it means.
In short, it stands for ‘Initial Coin Offering’ and can also be called a ‘token sale’
A company does this to raise money to build what they are planning to create.
As a trader, ICO s can be a great way to make a profit. This can be done by buying at a very low price during the ICO and sell after the product goes live when prices will likely rise.
2017 was a big year for ICO s and a lot was raised, however, moreICOs today are private
It is widely believed that they now raise more money privately than publicly, offering investment largely to whale investors.
ICO s shouldn’t be confused with IEO s ( Initial Exchange Offering
One of the most recent IEO s is that of LEO, the utility token for the Bitfinex exchange.
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Are ICOs a safe investment?
There are plenty of things to be aware of before diving into an ICO .
One of the most vital things to remember is that most cryptocurrency projects will likely fail
If you can’t figure out what makes a cryptocurrency different from all the other options, then it probably is not worth the investment.
Simplicity is another thing to look for
A famous phrase from Peter Lynch goes: “ Never invest in any idea you can't illustrate with a crayon.
Scams
ICOs are susceptible to pump and dump schemes
Pump and dump schemes are where the person seeking investment already owns a good deal of the cryptocurrency and after the price has risen after the ICO , sells all that they own, dumping the price and running away with investors funds.
Not allICOs are scams and this shouldn’t discourage you not to participate in anICO
Key things to look for include:
- A roadmap
- Transparent team
- Open-source
- Realistic returns on investments
Well-known ICO scams
A good way to understand what to look for in a scam is by examining scams that have already taken place
Pincoin and iFan
These were two ICO s that were done by the same company, Modern Tech, from Vietnam.
On the surface, they seemed like legitimate ideas, which of course any scam needs to appeal to people.
iFan was supposed to be a platform for celebrities to promote content to fans and Pincoin claimed to be building an online platform for advertising, auctions, investment and marketplace.
A key thing to note about Pincoin was that they claimed that investors could expect profits of up to 40%
Modern Tech’s scam wasn’t particularly complicated. They simply took everyone’s money and then disappeared. There was no pump and dump.
Up to 32,000 people were victims of the scam and a total of approximately $660 million vanished
Centratech
This perhaps one of the most famous ICO scams so far and was known for getting boxer Floyd Mayweather and musician DJ Khaled involved.
The two founders were eventually arrested and charged with fraud after they raised $32 million
US Securities and Exchange Commission (SEC), claimed that the two created fictional biographies of executives and posted misleading marketing materials.
It just goes to show that you cannot wholly trust what companies claim. You have to look much further than the materials they offer
Plexcoin
Plexcoin wasn’t as successful as Modern Tech and only managed to steal approximately $15 million.
Perhaps the biggest sign that Plexcoin was a scam was the absurd claim that investors could expect up to a 1,354% return in 29 days
Plexcoin is also one of the few times the SEC has gotten involved with an ICO while it was taking place, freezing the funds.
Regulation
As ICO s are still a very new concept in many parts of the world, they occupy a grey area in terms of government regulation.
However, regulation on ICO s is slowly catching up in different places, though there is not yet any global consensus on how they should be regulated yet.
Regulation is growing not just because of scams, there is also concern over what happens with the funds that are acquired and if everything claimed by an ICO is true.
China and the USA are perhaps the strictest on ICO s.
In China,ICOs are completely banned
Many platforms in China also now ban ICO advertisements.
However, it is worth noting that China may allowICOs in the future
In the USA, ICO s operate in a more complicated landscape.
While the SEC is largely responsible for regulatingICOs, they do it on a case-by-case basis depending on if they consider them securities or not
By understanding how ICO s are regulated in your country, you can keep safe from losing your funds.
Many involved in cryptocurrency may look at ICO regulation as a bad thing because they don’t believe that governments should medal in cryptocurrency.
However, from a traders viewpoint, regulation is a good thing
What are the biggest ICOs?
Some ICO s have been very large and in many cases, they are ERC-20 tokens launched on top of Ethereum .
- DomRaider
- Launched their token to fund the growth of their company and auction blockchains worldwide.
- Tron
- Now one of the top cryptocurrencies, the Tron project is very large and aims to decentralise the Internet. Tron’s founder, Justin Sun, is very well-known and liked, and many have commented on his great marketing skills.
- Bankex
- A company working on creating a Proof of Asset
- Aragon
- A project to create tools for decentralised organisations. Aragon has lost approximately 58% of its value since its ICO . Though that amount may sound high, others have not been so lucky.
- QASH
- Pronounced ‘cash’, QASH is the native token to the Quoine platform and hopes to solve issues of liquidity in cryptocurrency investments.
- Status
- A project that plans to create a wallet, messaging service and browsing service that upholds human rights.
- Bancor
- A decentralised liquidity network where you can swap any cryptocurrency for another.
- SIRIN LABS token
- They aim to bridge the gap between the blockchain economy and mass market. Unfortunately, since the ICO , the project has lost as much as 98% of its value.
- Tezos
- Essentially strives to be the last blockchain. They have a key focus on on-chain governance and believe it will make it the most sustainable blockchain ever. Their ICO raised supposedly 10 times more than they expected.
- Filecoin
- Filecoin’s ICO has raised the most so far but since then the value of Filecoin has dropped substantially, losing as much as 62% of its value.
By reading about successful ICO , you can see what things people are looking for in an ICO .
Key points
If you remember anything from this article, make sure it’s these key points.
- ICOs are a great way to make money
- Investors should do a good deal of research before investing
- Scams are real
- Regulation is slowly catching up withICOs
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