In this series, Peter Sin – PINC’s cryptocurrency advisor – shares his insights into the volatile market of cryptocurrency and ICOs.
Initial Coin Offerings, or more commonly known as ICOs, is a hot topic with accelerating craze since 2017 and will continue to be in trend over the coming years. There are many companies that are raising ICO as a means to fund their ideas and projects. That being said, there is also a substantial amount of scammers who taps on this ICO trend to deliberately deceive investors.
There are, of course, methods you can use to avoid getting scammed by such companies.
Understand the underlying blockchain
Before supporting a project, research and learn about the blockchain technology that the company is using. Dubious or failed projects are often those that do not integrate blockchain technology as the core of their business model or system for their products/services. You can always ask the company for their blockchain use case scenario.
For example, content creators will see that blockchain technology is useful in PINC as it authenticates their content and justifies their identity. For brand owners, the data provided by owners are immutable and accurate. Brand owners are assured their marketing dollars are spent to reach their target audience.
In-depth research into the company
Simply reading the whitepaper is not enough. Whitepapers can be easily copied and modified from other projects in similar sectors. Ideally, you need to establish multiple face-to-face conversations with the founders and advisors. Do your own background research on the founders and advisors. Most successful ICO projects will also organise both offline and online outreach programmes to meet the community, share their projects and answer the public’s questions.
Depending on where the company is based in, you will need to make sure that they are compliant with the laws and regulations. In Singapore, tokens are classified either as “security token” or “non-security”.
A potential red flag is when it is the first-time these founders are raising an ICO or have never been in the industry. If it’s your first time buying into an ICO, you would want to find a reliable and credible team that you can trust.
Cryptocurrency is a volatile, high-risk asset class. And as mentioned, there are many scammers around. Even after doing your due diligence, you could potentially still lose money. Sometimes, you might lose money in legitimate projects due to the volatility of the cryptocurrency market. So, you should only buy into ICO with money that you can afford to lose such as your spare cash.
A general advice that Peter always gives is to “only put ten percent of your investable asset”. If you have USD 10,000 right now, use less than USD 1,000 to buy into your chosen ICO.
Diversify your crypto portfolio
Example: Let’s look at the USD 10,000 that you are looking to invest. Consider the USD 1,000 that should go to buying into cryptocurrencies. This USD 1,000 should not go into one project. It is best to diversify and not put all your eggs in one basket. You can look at ICO projects in various sectors and crypto-economic structures. Even if one project fails, you will still have the other projects that will potentially reward you in terms of future price appreciation as an early supporter and investor of the project.
Photo credit: Pixabay
There are multiple different crypto asset categories that you can look into such as currency tokens (e.g. Bitcoin or Litecoin), utility tokens (most ICO projects are utility tokens), platform tokens (e.g. Ethereum), exchange tokens (e.g. Binance tokens) and security tokens. It is important to know the differences and their use cases before you dive deeper into the project.
I hope that you have a clearer understanding of what to look for before buying into a project. Feel free to reach out and ask questions on cryptocurrency and ICOs. Peter and I are here to share our knowledge and assist you in your cryptocurrency journey.