“Cryptocurrencies change everything. For the first time in history, anyone can create a global economic system that is not controlled by any single authority.”
Jack Dorsey (Co-founder of Twitter and CEO of Block, formerly Square)
In 2014, one of my friends told me he was planning to invest in the Ethereum ICO. This year, at a get-together, I met him again and asked him about his investments. I knew that his answer would consist of huge digits, but I was blown away by hearing the exact returns.
I think after hearing his story, you can gather that ICOs are a great investment, but most people miss out on this opportunity because they are only aware of the legacy tokens like bitcoin and ether and hardly pay attention to new cryptos making their debuts.
Some coins go on to sell for 400% of their presale price, which is why, when considering which crypto to buy now, many investors go for presales and newly launched coins, instead of more established options like Bitcoin or Ether. You will be surprised to know that by December 2022, blockchain projects and businesses have raised over USD 50 billion through ICOs. (SAGipl: Shocking ICO statistics 2024)
In this article, we will take a deeper dive into this topic and discuss the important aspects you need to know before you invest in ICOs.
What is an Initial Coin Offering?
An Initial Coin Offering (ICO) refers to a fundraising method in which a crypto asset is sold to the public to raise funds for a project. Say a new GameFi project is trying to get off the ground. Its creators may then release a certain number of tokens for sale to the public to raise the funds needed.
By buying these tokens, investors are getting a stake in the project and helping to make it a reality. The idea is that when you buy an ICO token, the project it is attached to will be released into the market. When its native tokens (that you own some units of) will increase in value, you make a profit.
Now, you might be wondering what makes an ICO different from other fundraising methods using crypto. A presale, for example, is typically held before an ICO and is sometimes restricted to a group of private investors. ICOs, on the other hand, tend to be more of a public affair. Initial Exchange Offerings and Initial DEX Offerings (IEOs and IDOs respectively) are fundraising events held before the token is listed on a centralized or decentralized exchange.
ICOs were especially popular in the later 2010s, and many went on to raise millions of dollars. They saw a slump in popularity, however, due to some organizers not registering their sales and running into trouble with the law. Now, years later, the industry is much more mature and this fundraising method is seeing a resurgence in popularity.
DO YOU KNOW? ICO projects have expanded beyond the traditional technology sector, encompassing over 25 diverse industries. While technology remains a dominant focus, sectors such as healthcare, tourism, and energy have also seen significant ICO activity.
Pros of ICOs
ICOs offer various benefits, the ones that attract the most investors are as follows.
Cheaper Tokens: ICO tokens are sold at a lower amount than the predicted market rate, which can help you save on your investment.
The Potential For Profit: If the tokens go on to perform well in the market, your initial investment can be worth several times more. Many investors have gone to earn a small fortune from ICOs.
Early Access: Besides the financial side, many ICOs offer non-monetary benefits for investors such as early access when the project launches, merch, access to the community, and so on.
Supporting Innovation: Depending on the ICO in question, you can also get the satisfaction of supporting a promising innovation.
Cons of ICOs
Every coin has two sides, there is no question in saying that ICOs can offer significant benefits, but there are some risks involved as well, including-
Underperformance: There is always the possibility that the project will underperform once it is out of the ICO stage. In this case, investors would lose money
Scams: Not all ICOs are legitimate. In fact, some ICOs are straight-up scams that rob investors without delivering any project.
How Do You Take Part in an ICO?
If you are convinced of the benefits of ICOs and made up your mind to take part in them, I would advise you to keep the following points in mind.
Stay Informed
To get the most benefit from ICOs, you’ll want to know about them well in advance. Your best bet would be to subscribe to crypto-focused publications and newsletters, as these will likely report on upcoming and ongoing ICOs.
On social media, look for accounts that regularly post about ICOs, and make sure to follow them so you don’t miss any updates.
You should also join groups on Discord, Telegram, and other platforms with crypto investors. In these groups, you’ll hear not only about the best ICOs but get advice on how to navigate them.
Do Your Research
As much as there are worthwhile and promising ICOs in the market, there are also pump-and-dump and other scams that are looking to rob you of your money. That is why, before getting started with an ICO, do your research into the project and its organizers.
Are they known to have fronted successful projects in the past? Does the project have a viable use case? What do experts think of it? Don’t get carried away by lofty promises, and instead, make sure that the project is viable and duly regulated. When in doubt, act with caution or ask your community for advice.
Sign Up
After you’ve confirmed that the ICO is indeed legitimate, your next step will be to sign up for it. Visit the project’s website and confirm the date and time that the ICO will launch, as well as how many tokens will be sold and how much each unit will cost.
Confirm how to connect your crypto wallet to receive the tokens and any other steps you’ll need to take before you can buy the cryptos.
The last thing you’ll want is to be caught unawares or get some details wrong, so register well in advance and take note of all of these details.
Buy and Sell
When the time comes, buy as many tokens as you feel comfortable with while keeping the risks in mind. As we’ve highlighted in the past, tokens rise and fall in value, and investing in an ICO does not guarantee that anything. Once you’ve taken possession of the tokens, make sure to store them securely, ideally in a cold wallet to prevent hacks.
Your password and recovery phrase should also be kept very secure and with any luck, your tokens will be safe. Hopefully, as the project rolls out and the tokens increase in value, consider how long you want to hold on to them before cashing out for profit.
PRO TIPRemember that transparency is the key, so check if the team you are considering working with regularly communicates with potential investors or not. Be wary of teams that avoid direct questions or have a vague online presence.
From everything we discussed in this article, it can be rightly concluded that ICOs can be an excellent investment, but it also involves several financial risks. So, I would advise you to take the precautions mentioned above and think twice before going forward with your decisions. Invest safely and smartly.
