How to minimize risks when investing in ICO

Hello! Our evacuation platform CarTaxi on August 30 entered the pre-sale ICO. Hooray! You can make good money on ICO, and you can lose everything by choosing the wrong project. In this article we will explain why investing in an ICO is profitable and how to succeed in this.



There are a lot of options for investors today. There are proven methods for years, like bank deposits. True, they bring very small dividends, barely covering the rate of inflation. The greatest income is brought by tools which are considered risky. As a rule, they are new, “not run-in”, with the principle of work that is incomprehensible to most people.



These include ICO (Initial Coin Offering) - an analogue of the initial sale of shares (IPO) in the digital currency market. Companies and projects (mostly technological) put up so-called tokens (digital coins) at a low price for presale. The investment idea is that after ICO, the cost of tokens increases tens, hundreds or even thousands of times, and the investor can resell them at a more favorable rate or receive a share of the business dividends. The first ICO was held in July 2014 by the Ethereum platform. Since then, project tokens have grown by more than 80,000%.



Investing in ICO in terms of risk is complicated by two points. The first is the lack of legislative regulation. For the investor, this has its advantages: you do not need to prove the legality of your funds, to spend time on bureaucratic procedures. On the other hand, it increases the risk of fraud - the emergence of projects that collect money for the ICO, and then simply disappear.



The second point is a huge competition between projects. This year the market is experiencing a real boom. According to Bloomberg, over the past period of 2017, more than $ 1.5 billion was attracted with the help of ICO, while for the whole of 2016 - $ 300 million. The most popular technological projects are related to the development of the blockchain. The implementation of many of them did not have enough money collected, the idea did not succeed in the real world or because of illiterate planning the business plan failed. The cost of tokens did not soar to the skies, as investors had expected, and they lost their digital money.



Here are some tips from our team that will help you choose a bona fide and professional project for investments, minimize risks and make good money.

Proximity to reality

Most of the projects that go to ICO are closer not to IPO, but to crowdfunding. They represent the idea for the implementation of which funds are raised. The risks in this case are very high. Evaluate the need for elaboration of the idea. Ideally, it should be, at a minimum, tested, or its chances for success should somehow be substantiated differently. For example, this summer, he successfully raised the required amount for an ICO project that plans to create a network of office spaces for blockchain-community around the world. At the time of ICO, the project had only one office open - as a demonstration of their ideas.



The other extreme is the exit to the ICO business from the real sector. For example, in Russia it has become popular in the manufacturing sector. Here the risks, on the contrary, are low, because tokens are backed up by something tangible. But the yield is appropriate. For example, one of such projects announced a yield of 5.5% per annum. For investors accustomed to ICO indicators, this is completely uninteresting.



The option balanced in terms of risk versus profitability is an investment in an existing tech business that needs money for development, clearly articulated in a business plan. There are few such projects on the market.

Idea

In any case, it is important to adequately assess the prospects of the idea proposed by the project. How much is it really needed and whether it will be popular among end users, how wide is its coverage. From this directly depends on the profitability for the investor. The largest ICOs, according to Rusbase, are projects on the blockchain platform. Among them are projects with a best-selling idea based on, for example, an Internet browser, a business management platform, a system for storing files, developing a debit card based on the Visa payment system for paying for goods and services cryptocurrency, and others. Or more applied ideas: e-sports bets, investments in precious metals, etc.

Using Tokens

The main options that projects provide for the further use of tokens are their resale in the cryptocurrency market, using it to pay for project services or receiving dividends from business income. All options have their disadvantages and pros, so it’s optimal for diversifying risks when the site offers all options for using tokens at once. For example, in CarTaxi, 25% of profits are sent for dividend payments, another 25% is sent to buy tokens on the market, in order to increase their market value. In addition, after ICO, users of the CarTaxi application will be able to pay for the evacuation service with their tokens.

Elaborated strategy

The idea may be good, but illiterate planning will hack to pieces. In order for tokens to be profitable in the long term, the money earned on the ICO must be properly spent. That is, to have a clear strategy of actions that will increase the capitalization of the business and, accordingly, the price of tokens. These items must be displayed in White Paper. In this sense, the professionalism of the team is important not only in terms of IT and the blockchain, but also in terms of business and economics. White Paper usually contains information about the team, get acquainted with the experience of its participants: what results have they achieved on previous projects, are they well-versed in the blockchain industry and in business planning.