2019-12-20 2018-07-24 A hard dilemma for a crypto investor: ICO or TOP-10? Oleg Tkachenko 2019-12-202018-07-24

I’m going to study and compare the advantages and disadvantages of investing into ICO and the TOP-10 cryptocurrencies.

Investment into ICO (initial coin offering) can return from 100% and more in a few days, while the cryptocurrencies, included into the TOP-10 list, feature the volatility of about 1%-6% a day. Experience has shown that during the first days of ICO the cryptocurrency price jumps immediately, offering an opportunity to gain, and then goes down. The cryptocurrencies included in TOP-10 are much more reliable but yield less profits. Form this review, you will learn what ICO is and how you can make profits from it, what risks are involved and how you can minimize them, what alternatives to investing in ICO exist.

A hard dilemma for a crypto investor: ICO or TOP-10?

I think, it’s no use denying that cryptocurrencies became the most interesting asset to invest in 2017, and they are likely to repeat the success in future. The key to the success is not in the rapidly growing capitalization, but rather, in the volatility that allows making 12%-15% profits on a rise or a drop just in a day. While the traditional BTC and ETH feature an average volatility of 0.5%-6% a day, the new startups, based on ICO, increase in value by 2-4 times during just a few days. During the next six months, investors expect at least 100 of new ICO-based projects, in whose pre-sale one can invest already now. However, the statistics on startups in 2017 is not that bright; about 40% of projects were shut up at the time of pre-sale or soon after the ICO. So, I suggest you carefully study an asset before you invest.

Question: should one risk and still invest in new startups or conservatively earn on TOP-10 coins? If yes, then at what stage it is the best to invest and what the risks are? And what, in fact, is cryptocurrency ICO? You will find out all of this in the article.

ICO: how to gain and avoid risks

ICO (Initial Coin Offering) is a means of raising funds for a cryptocurrency startup by initial token offering. At some points, it is similar to IPO. The developers receive an opportunity to raise the capitals for the project, promote the project, and to make profits from an increase in a token price on the exchange.

In general, developing a cryptocurrency project looks like this:

A team of developers invents an idea that will be interesting to the community;

They prepare White Paper; it is a kind of press release where they describe in detail the gist of the project and its functioning;

They prepare a road map. It is a detailed plan for developing the project with timelines;

They chose the code their cryptocurrency network will be based on the github.com web site;

They hold a marketing campaign and organize a pre-sale, preliminary selling of tokens through the developed website, to analyze the demand and raise funds;

Carry out ICO and strictly follow the road map and the White Paper.

How can you make profits from ICO and can you do it at all? Let’s study on the latest examples.

1. Measurable Data Token. The coin’s token sale started on December 15, 2017 and finished on January 15, 2018. The platform is a computing network, linking providers, buyers and users.

It is clear in the chart above that the newly appeared coin, a little increased in price, amid the general cryptocurrency market rise in early January. But, if the market drew down to the November level later on and was rising locally in the next three months, Measurable dropped almost to zero and was never up again.

2. CoinPoker. A gaming coin, created as an internal currency in a blockchain-based game (poker), its test began in October, 2017.

The cryptocurrency ICO was launched in February, 2018, just after the market sharp crash. But it featured the same tendency: first, the coin price was a little up, then, it reached its highs and never went back to them again.

3. Crypterium. A digital bank that was planning to provide the services of foreign currency and cryptocurrency exchange. The coin appeared in January, 2018.

Although the startup is now included into Top-200 largest cryptocurrencies by market cap, its price chart, after the offering, went down and never tried to move up, looking like almost a flat line. Investors don’t seem to be interested in the project anymore. These examples suggest that, in most cases, one can gain on ICO only during the first wave of speculative growth. Investors buy out tokens during the presale; at the time of ICO, the market is entered by other individual investors, pushing the price up. Investors aim at “dumping” their rising tokens in the right time and forgetting about the project. There are, of course, startups that don’t fall in price after the first growth wave, but they are very rare; there maybe one out of 100 projects. You can make profits from ICO only in the short term, provided you have some luck. It makes no sense to invest in a new startup for a long term, based on the hope for its being unique, when there are already Top-10 cryptocurrencies.

There may be only a single advantage of investing in ICO; it is a possibility to gain 100% and more just in a few days, if you exit the rising wave on time. However, the coins do not always rise in price. Those, who buy the coins during their presale, have sometimes an advantage, due to a cheaper cryptocurrency price.

Flaws of investment into ICO:

Scams. Most startups are created to raise funds. The project idea becomes a legend and the website -a beautiful front cover. No regulations and no possibility to bring the developers to justice result in missing investors’ money.

Support. Nobody can tell how developers will support the project, and how investors will treat it. If it is clear about Top-10 cryptocurrencies; with a new startup, it is difficult to predict.

Liquidity. New cryptocurrencies are not accepted by the exchanges, that is they are much harder to buy and even harder to sell than TOP-10 coins. For example, about 70% of Crypterium turnover is on HitBTC, 95% of Measurable is traded on OKEx, and 60% of CoinPoker – on HitBTC;

Safety. New startups haven’t yet been tested in practice and are not well-known. According to EY (Ernst&Young), out of $3.7 billion, raised by 372 ICO, around $400 million was stolen. The most popular way of stealing is fishing, that is duplicating the original website. About $1.5 million a month was stolen by means of fishing.

Assessment. According to analysts, about 84% of startups, launched with ICO, are just ideas, 11% of them are at the stage of developing, and only 5% are working projects. Investors can estimate a project, based only on the White Paper or the marketing campaign.

ICO drawbacks are much more numerous, compared to TOP-10 cryptocurrencies. But they all are compensated by the opportunity to make big profits. So, if you are still willing to risk, follow a few tips.

How one can reduce the risks, associated with ICO:

Assess the startup idea and the stages of its developing. There are over a hundred clones of Bitcoin, Ethereum and Ripple, but just a few of them are included into TOP-30. They feature unique supplements, making the network more appealing for participants;

Assess the developing team. It is important, who started the project and what experience the team have. However, there are examples, when the developers placed a photo of Vitalik Buterin on the website to promote the project.

Check the White Paper with Plagiarism Detection software.

Check comments about the startup on specialized forums (bitcointalk.org, reddit.com);

Check if there is a prototype or the product code on github.com web site;

Don’t invest in a startup during its fast price growth, wait until the investors clarify their attitude and until the supply and demand balance.

Since the second half of 2018, it will be more difficult to look for new startups for investing. According to regulators, ICO involves high risks. If now you can learn about a pre-sale and ICO from the Internet, soon, it will be banned. At least, Google and Facebook promised to do so. I’m sure, the project developers will circumvent the ban, understanding, for example, Google automatic algorithm related to stop words. Meanwhile, you have to search new startups by means of keywords in search engines. Perhaps, there will be special Telegram channels, based on the same principle as that of HYIP projects.

For now, I recommend following new ICOs on the website icotokennews.com, there is the information about pre-start, current coin offering and the relevance of the links to the startups’ websites. However, I can’t say, according to what principle the information is included into the site, as on CoinMarketCap, there is information not about all the cryptocurrencies. But, still, it is rather good to assess the general situation.

And finally, I offer a few more examples of the relatively new failed startups:

Centra. It appeared in September, 2017 and came forward during the peak of the crypto market in January, 2018. The project organizers attracted celebrities and promoted the new project by all means. In early April, 2018, they were arrested by SEC, and the coin rate dropped to almost zero.

Tezos. During its ICO in summer, 2017, the startup raised about $230 million, getting the first place by this indicator. Already in autumn, 2017, a class suit was filed against the project developers, which added to the team’s internal disputes, also being addressed through the court. The startup, suggested for ICO is hardly being kept afloat now.

Produm. ICO of the Lithuanian startup should have started on January 20 and finished on March 13, 2018. It was suggested to raise about $2.5 million- $6 million. Having raised about 18 % of the originally suggested amount of money, the project was shut up. Later, it became known that all the data on its site, including the photos of team, had been a fake.

Other largest ICO, turned out to be scams, are: DeClouds (3.5 million USD), OPair (about 1 million USD), AuthorShip (about 1 million USD), Confido (374,000 USD), Eros.vision (20 million USD). Maybe, one still had better invest in TOP-10 projects?

Conclusion. ICO or TOP-10 cryptocurrencies? Both investment ideas can be considered, but you should compare the risks. Here, a good rule is: the more is the profit, the higher is the risk. One can and should gain on ICO, but only provided that they can understand startups and are prepared that the odds to lose the capital are 50/50. So, I, personally, prefer safer assets like ВТС, ЕТН, XRP, LTC; these cryptocurrencies have already proven their worth. If you compare the crypto market with Dot-coms, the ideas and the technical realization of the first one will remain even if all cryptocurrencies collapse.

There are two main ways to make profits from TIP-10 cryptocurrencies:

cryptocurrency exchanges;

brokers.

The brokers’ drawback is high margin requirements and a limited offer of cryptocurrencies. However, brokers enable you to gain on the price fall (short positions) and provide financial leverage. The choice is yours!

Price chart of AA in real time mode

The content of this article reflects the author’s opinion and does not necessarily reflect the official position of LiteForex. The material published on this page is provided for informational purposes only and should not be considered as the provision of investment advice for the purposes of Directive 2004/39/EC.