Over the years, cryptocurrency has proved itself as a worthy investment while also being considered risky due to its high volatility. Cryptocurrency may also be referred to as a digital currency, and compared to fiat currency, it’s decentralized or not regulated by any institution. This is possible due to blockchain, a network of computers functioning as a public ledger. Furthermore, its value is dependent on the individuals that own this digital asset instead of being determined by the government. As such, it’s also become a desirable investment because it may yield high returns and isn’t affected by economic issues such as inflation and recessions.
With that said, there’re various ways to invest in crypto, and participating in ICOs is worthy of consideration. ICOs, or initial company offerings, are a startup’s way of raising funds for the coin, software/application, or service they’re building. When you invest in these, you are issued a cryptocurrency token by the company. If the company grows and succeeds, the value of this token grows, and you can sell it to make a profit.
If you’re interested in investing in ICOs, you may want to consider certain factors beforehand. One way to decide if it’s worth investing in is to learn how it works thoroughly. Aside from that, you have to take a look at the benefits and risks, as discussed below:
In deliberating whether you should invest in ICOs, the following benefits are worth considering:
- Very Accessible
One significant benefit accredited to ICOs as an investment is their high accessibility. Indeed, investing in an ICO is quite straightforward, and you can easily access it online. It also offers a wide range of costs and is quite flexible in terms of minimum investment costs
Especially if you have a budget, there’s a good chance you’ll find some ICOs fitting it. And unlike the traditional way to invest in startups, wherein you need to have connections to invest in the business, everyone is welcome to invest in an ICO.
- Additional Rights
Another benefit of ICOs is how you may gain additional rights regarding the startup if you invest in them. There are various rights that you may get, but the most common ones include shares in revenue and voting rights.
The former means that you may be promised a portion of the profits when the business turns a profit. Meanwhile, when you have voting rights, you may influence how the company is run, the projects to pursue, the protocols they implement, and more.
Other rights may include:
- Accessing the cryptocurrency platform
- Playing a role in maintaining the network
- Deciding who secures the project’s blockchain
- High Return On Investment
Investing in ICOs can potentially give you huge returns. Since startups usually offer tokens at a small value (to encourage more investors), and if the business goes well, the value of each token will skyrocket. However, to reap this benefit, you’ll need to be wise in choosing the ICOs you invest in. Hence, you must do your due diligence and thoroughly assess the startup that is offering the ICO.
While the benefits look great, you must also consider the following risks before investing in ICOs:
- Increased Risk Of Fraudulent Activity
The first risk worth considering before choosing to invest in ICOs is the fact that there’s a history of fraudulent activity and scams associated with this asset. This is because ICOs are generally not protected by laws and regulations, making it difficult for regulatory institutions to go after frauds.
To avoid becoming a victim of fraudulent ICOs, you must conduct a thorough background check on the team behind it. Furthermore, consider assessing the asset objectively and make sure the hype or speculation is not driving you. Many scammers try to hype a certain token to entice more investors through the fear of missing out (FOMO). And when the hype dies down, that’s when investors realize that they were just pulled into an elaborate Ponzi scheme.
Lastly, consider asking for documents to confirm the legitimacy and the purpose of the ICOs funds. A legitimate company won’t have issues with transparency and would readily give you their paperwork.
- Increased Volatility
Besides this, another risk associated with ICOs is their high volatility, much like other cryptocurrency investments. This is for several reasons, such as the fact that its value is dependent on numerous factors besides how the startup is doing. Another reason why it’s so volatile is that its value is highly speculative.
Furthermore, the purpose of the token may never even be realized. Therefore, before investing in an ICO, it’s vital to conduct a thorough risk assessment and prepare for the possibility that you might lose your money instead of gaining profit.
- Highly Uncertain
On top of volatility and the risk of fraud, ICOs are a precarious investment overall. There are several reasons, such as the fact that the business might fail, rendering your coins worthless, especially if the business has no operations behind the idea yet. This is unlike investing in traditional companies that are already established on some level and have a working business model to show. Unfortunately, for most ICOs, you have to carefully evaluate if their idea is indeed profitable and if the current team will succeed in launching the business.
Another reason it’s so risky is that there’s a lack of security regulations which may make it challenging to request disclosure that can help you further evaluate the asset. This is because these security regulations require startups to disclose specific information. However, because there’s a lack of it, they may choose not to disclose this. Therefore, if you’re investing in an ICO, consider a startup that will reveal every piece of information you need to evaluate the asset.
Cryptocurrency has proved to be a worthy investment. This is because of the high returns you may gain from its volatility and the benefits of investing in a decentralized currency unaffected by economic events. However, when investing in cryptocurrency, it’s worth noting that there are several ways to do it. One such way would be to invest in ICOs or initial coin offerings. Hopefully, the above list of risks and benefits has helped you decide if it’s worth considering.