Saturday, January 13, 2018

How To Analyze Initial Coin Offerings (ICOs)


  • ICO's are no different from any other investment, you have to do your due diligence.
  • The process starts with researching the offering and the team behind the offering.
  • The process ends with finding a good price to buy at.

I've been asked on several occasions how to analyze an ICO. The process of analyzing an ICO is no different from any other investment. 

First a few reminders: Don't ever invest your money in anything without feeling comfortable with it. I also wouldn't invest in any crypto-coin with money that you can't afford to lose. As much as I like crypto, extreme caution is required in new markets. There are tiers of risk in the crypto-world and ICOs are among the highest because you have no historical data. 

With that said, let's take a quick look at scams.

Vetting Out Scams

Before getting to the analysis process, I want to put an umbrella of context over your goal. I hate to say this, but there are many scams in this space. The truth is, like the Federal Reserve and quantitative easing, a good scam is hard to detect. These are a few things you can look for:
  1. An incoherent message or purpose.
  2. Project sounds similar to others -- you may even find an identical white paper or technical detail being used.
  3. Fake credentials and websites -- click on ALL of the links of the website to see where they lead and if they're live.
  4. No names or transparency. You want to see faces and those faces should be attached to real people. You can vet people by looking at social media accounts or LinkedIn. Even these can be faked.
Keep this list in the back of your mind when going through the analysis process.

The Analysis

The same questions you have for any start-up should apply to ICOs. Analysis is a function of 6 main areas: Quality, Team, Team Investment, Blockchain, Social Media, Total Project Funding
  1. The first thing you want to look at is the quality of the project. Is it something that looks thrown together, or does it seem like a well thought out idea. Quality is a large category that can be split into others. In general, it refers to the idea potential. Is the road map overly optimistic? What are the merits or features of the token used? Does the coin derive value from the product or something else? How will it be used (for transactions or investment)? How is value created for token holders (staked interest, a % of profit)? How many tokens are being issued and is there a cap on the number of tokens.
  2. The Team: This is a group of people you are going to trust with your money. Where have they worked, what have they worked on before, do they have advisers? Are they qualified? You also want to note how many developers they have? Do those developers have profiles on Github?
  3. How does the project use blockchain? The value proposition for using blockchain should be clearly stated. Is the market big enough to benefit from the new technology or service provided? The start-up is going to have to unseat others in the market -- can they do that?
  4. Browse social media to see what people are saying. Can you pick up a general feeling about how people in the community feel about the ICO? I tend to shy away from ICOs backed by celebrities. I never buy an ICO endorsed by a bank or government (Venezuela excluded). If I do pick them up, it's after the "pump and dump".
  5. Check to see how much the team has already invested. Have they invested their own money in the venture?
  6. How much money does the total project need? I'm not fond of pre-sales, but if there is one I want to know how many offerings will take place. I also want to know what the allocation process will be.
If you can get to this point, you can progress to the next step: technical analysis.

Moving From Fundamental To Technical Analysis

Technical analysis is difficult without historical prices, but there are some tricks. Now that you know what you want, accumulate low. You want to buy at pre-pump prices.

There are a group of ICO buyers that like to buy and sell into the pump. They have no intention of holding. Once these guys bail, where is everyone going to hang out? That's where you need to place your order. Look for the buyer with the largest order at these prices and place your order just before theirs. You also want to monitor the number of coins in circulation during the ICO. Distributed coins shouldn't be for more than 40%. Too many is a sign of a dump. Wait and pick up on pre-pump prices.

If you like what you're reading, please join my mailing list to receive blog posts and updates as they occur. If you're an investor with all of your assets tied up in the stock market and cash, you might want to consider a few diversification strategies. Gold is the oldest asset in the world and it's inflation proof. Bitcoin is the gold standard for the cryptocurrency world, which is the fastest growing asset class in the world. Diversifying your portfolio into one or both of these assets can help to insure your portfolio against a stock market crash or inflation. Most importantly, it can help to safeguard the gains you've made over the last 10 years.

Please note that there are other companies that sell gold and Bitcoin on the market, and you should always do your research when making decisions about your portfolio. Just like your personal health, if you're planning on having major surgery, you need to get a second, and sometimes a third, opinion. You want to make sure your surgeon is good and has performed the procedure many, many times.  In the same way, you need to trust your broker and you need to make sure they are reputable. This is the process I used when looking for a broker to recommend.

Full disclosure: RegalAssets compensates me for everyone I send their way, but I would receive compensation from any company I chose to recommend. The only broker I'm recommending is Regal, primarily due to its innovative product offering in my favorite commodities - gold, precious metals and cryptocurrency like Bitcoin. They also have a distinguished track record for success (see below).

Next Steps: Use Regal as one of your options and compare against them. Your other brokers should be able to offer the same level of service and the same low rates. The kit is free and it will provide you with a basis for comparison. Don't wait, get started today. Fill out the form below to get your free investment kit.

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