4 Reasons Why ICO Investments are Dangerous
After a few days into crypto currencies, you will come across the term ICO: Initial Coin Offering. These are investment offers to buy tokens (sometimes coins, but that’s technical stuff) at a discounted price before the token is released to the market. In other words, this is an investment seek for a startup. Usually, the discount is claimed to be very high and that you are part of a unique world changing project. Let me use a different phase to describe such investments: There is no easier way to quickly burn money. Read here about four reasons why it is not worth it!
#1 The Value is Fake
You read on the nicely created web page, that you can now buy the super XYZ token for 1$ per piece and usually it costs 2$. I mean, whoever believes this, is not in a good spot in crypto currencies. Nowadays, everyone claims that we save everywhere for everything. The question you have to ask is: Why is the XYZ token worth 2$? They will also tell you the amount of tokens generated in total. If there are 20.000.000 XYZ tokens created in total (which is not uncommon) the company is apparently valued at 40.000.000$. Startups are usually not that valuable.
The value the token is really worth, is determined by the market once the tokens have as been released. And 99% of the cases, the token will just dump. I do not even need to prove that, but rather explain: 99% of the investors are just putting money down, to gain profit as soon as the token is released. Since you have bought the XYZ token for just 1$ instead of 2$, you would already make 100% profit if you sell it for 2$ when it goes live. And you are not the only one thinking like that. So, the chances that the token will dump is very high.
#2 Bitcoin is too Strong
In most ICOs you can only invest with Ethereum or Bitcoin. However, the tokens value is commonly picked in USD. Since you are investor, you have to dig into the maths in order to find out, how much you truly gained. And you are not allowed to use USD for the comparison. Why? Let’s assume you have used Bitcoin for investing. Thus, we have to calculate how many Bitcoin you have after selling your tokens to determine your profit. Who would use US Dollars here? If you invest with Euro in a company and you sell your share afterwards to Euro, you are also not suddenly taking another currency like US Dollar for the comparison.
The problem is, that most are fixing the amount they have invested in USD. However, actually the investment unit was Bitcoin. Bitcoin would have gained in value in the same time as the token till release! And this is very often disrespected.
Aaahhhh, give me an example, you ask. Ok, so let’s start out with the ICO to buy XYZ tokens. Each token cost 1$ instead of 1.5$. At the time of purchase, the Bitcoin price is 10.000$. So, you send them one Bitcoin and will receive 10.000 XYZ Tokens. Let us assume that the ICO takes 3 months to list the XYZ token on exchanges. Bitcoin is rising by 70% in these three months as well.
Let’s calculate the USD profit how most people do: You have invested 10.000$. We assume you sell luckily for 1.5$ per token and get out with 15.000$. That’s a profit of 5.000$.
But I say, you have invested 1 Bitcoin. If that one Bitcoin is not traded away and just steady in your wallet, besides forks, you have also actually an asset worth 17.000$ (+70%). And this means Bitcoin will only gain 70% in three months…!
So you would have made a bad deal in the end.
#3 Time Consuming Buisiness
Please respect the time effort to properly investigate an ICO. You have to read through the internet, multiple resources about the project and the people behind it. In the best case, you find time to read the white paper – and understand it! An amateur video production and single web page can be done by everyone nowadays. Or at least with a 100$ budget. So, don’t be blinded by these. Check out, who is behind the project and if these people look trustful.
#4 HIGH Risk of Loosing Everything
The risk of loosing everything is well-known in the area of crypto currencies. However, for ICOs, that risk is even multiplied. There is no possibility to withdraw the tokens before they release them. You have no real invoice. Furthermore, most ICOs are hosted in countries like Hong Kong. So, the law case is not that straight forward in case you chase them.
CoinCoach Investment Tip
I do not recommend to invest in any ICO. It is a super high risk investment and with the maths usually not worth it. You have to be up to date with the current market situation, different currencies and have the technical knowledge to rate the product. The research is time consuming and leaving your Bitcoin where they are is commonly even giving a higher return on investment.