Why You Should Invest in an ICO.
If you don’t already know what an Initial Coin offering (ICO) is, I can give a quick recap. In the simplest of sense, it refers to the opportunity offered by a startup company to buy their coin or token before it goes public. Yes, it is just like Initial Public Offering (IPO). The major difference is that big shot companies such as Facebook, Twitter, and Snapchat made such offer to private investors. Unless of course, the investor was really big.
Why Investing in Initial Coin Offering is a Good Idea
Majority of the Cryptocoin you see around today on Coinmarketcap are from the old times, the time before Initial Coin Offering (ICO) existed. Those were interesting times when the announcement was made that, on a particular day, Cryptocoin X would start mining. What happens is that the pioneers pre-mine some of the coins, and left the rest to be mined by users. Price discovery comes into play when trading begins.
That was back in the days. Now you have Initial Coin Offering (ICO) to invest in and it’s usually worth the amount collected. The implication is that if 100,000 Bitcoins was raised for a particular project, that’s how much the project is worth. The advantage of this is that such project has established a hard value, and such value can only rise. This leads us to the major benefit of investing in an ICO; your investment is likely to worth more when it hits the market. There is, however, one exception to this advantage.
The only exception is when fake pricing occurs. What does fake pricing really mean? Fake pricing occurs when creators hold on to a significantly larger amount of Cryptocoin than that offered to investors. An example of that occurred when Gnosis’s pioneer offered just 5% to their investors. By doing this, they artificially pumped the value of their project.
Another major problem with purchasing an ICO is over funding. So, imagine this scenario where everyone buys Cryptocoin X during an ICO. Finally, it hits the exchange, but the demand drops. Consequently, the price drops below the value of the collected token.
Other Risks of Investing in ICO
The fact that it is getting less common due to an upgrade in standards does not make it less threatening. That’s right, we are talking about frauds that involve creating an ICO. Example of such higher community standards includes; escrow, dev Linkdins, Whitepaper, Credibility, etc.
This risk involves the project being unable to secure enough investment during the ICO. You should note that underfunding causes benefits such as; more people buying the exchange; subsequently driving up the price. However, when the underfunding is extreme, the project is likely to fail.
Just like underfunding, it has its advantages. The main one being better publicity, subsequently leading to more potential buyers. However, this also leads to price stagnation, in which there are no more buyers. Stagnation will eventually lead to the token getting dumped.
Click HERE to know about what an ICO is.