Early investment is paying off big time
The average return on the S&P is 10%. Over the last year bitcoin has seen unprecedented returns of 1000%. But savvy cryptocurrency investors are investing in ICOs and making ROIs as high as 50,000%. Stop and think about that for a moment. That means for a $100 investment in early 2017 you could have netted $50,000. Not too shabby for a year of trading.
ICOs (Initial Coin Offerings) are a relatively recent phenomenon where investors exchange cryptocurrency (usually Ethereum) for a stake in an early stage project. This sort of early stage investing has traditionally been highly regulated. Cryptocurrency has provided a way around these regulations. Rather than having to wait to invest until companies grow large enough to IPO and hit the stock market, ICOs let you get in at the ground floor.
Banned in some countries
Not every market is thrilled with ICOs thumbing their noses at regulation. China and South Korea both banned ICOs earlier this year and the United States is beginning to crack down on ICOs that violate security laws. Despite this, many investors are optimistic about the early stage investing opportunities that ICOs provide.
Imagine if you could get in on Facebook when it started back in 2004. Or Google just as it was raising its early rounds? ICOs make this a reality.
Top returns of 2017
2017 saw some incredible returns for investors in ICOs. Some of the leaders of the pack are listed below:
- ROI: $100 in their ICO = $14,151 today
- One-liner: Privacy focussed ethereum
- Why it matters: Komodo is yet another platform for creating applications on the blockchain. The twist is it’s focus on ICOs. It allows anyone to seamlessly create their own blockchain, issue tokens, and ICO. It’s built off a zcash fork so unlike ethereum it offers anonymous usage and transactions.
- ROI: $100 in their ICO = $36,600 today
- One-liner: Lets blockchains communicate with other blockchains.
- Why it matters: There are many cases for businesses to create and maintain their own blockchain. Ark aims to allow easy communication between different blockchains. Rather than having a bunch of independent data stores and platforms with Ark there is the potential for a network. The need for this network will likely increase as more and more blockchains are created.
- Return: $100 in their ICO = $50,834 today
- One-liner: Privacy focused cryptocurrency
- Why it matters: Privacy focussed cryptocurrencies like Monero and Zcash have been getting a lot of attention lately. Spectrecoins claim to fame is that it provides network privacy by running within the TOR network.
The average returns of ICOs outpace bitcoin
The top ICOs of 2017 offer thousand % returns on investment - but what about the average return? Are ICO returns simply a matter of luck?
An analysis of 232 ICOs by Mangrove Capital partners concluding that:
“If one had invested blindly in every ICO, including the significant number of ICOs that failed, this would have delivered a 13.2x return.” [http://www.mangrove.vc/ico-report2017]
At a rate of 1,320% ROI, ICOs beat out even bitcoin’s prodigious rise over the last year.
Unfortunately as ICOs gain popularity as a fundraising mechanism more and more projects seek to take advantage of them. In November, cryptocurrency startup ‘Confido’ raised $375,000 in an ICO before disappearing without a trace. Others like Tezos, which raised 232 million earlier this year, are embroiled in multiple lawsuits with investors demanding their money back. The lack of regulation in this space has lead to a wild west where anything can happen. Investors should be prepared to do their research and approach all potential investments with skepticism.
This space is just getting started
2017 has been a watershed year for cryptocurrency. But the trend is just getting started.
There are a few positive indicators that ICOs are here to stay:
- The number of ICOs is increasing at an exponential rate.
According to Smith & Crown, there are 190 ICOs planned for next month and more are listed every day. This is a massive increase from the handful of ICOs that launched in 2016.
2. The amount of money entering this space is trending upwards
* Totals raised are based on data from Smith and Crown and reported by companies.
Despite a brief dip in July and August, ICO investment has recovered and shows signs of increasing exponentially.
3. Barriers to entry in this space are still high, but decreasing steadily
Right now investing in ICOs has a moderately high barrier to entry. You must hold ethereum, which many investors are only just learning about. You have to learn how to interpret white papers and must be technical enough to understand how your EC20 tokens will be stored. If you want to trade on an early exchange like Etherdelta, be prepared to learn how to use metamask and manually manage your own ethereum transactions.
We will likely see more interest and activity in this space as these barriers to entry are broken down in the following year.
How can you invest?
So you’re a cryptocurrency investor. You hold bitcoin, some altcoins and are ready to take a step into the wider world of ICO investing. Here’s how you can start:
1. Obtain ethereum.
Some ICOs accept bitcoin or other cryptocurrencies but ethereum is by far the
most widely accepted crytocurrency when it comes to ICO investing. It’s also the currency of choice for trading for ICO tokens once they hit an exchange.
2. Research. Research. Research.
Unlike IPOs which require rigorous screening, there is very little regulatory work required for a company to ICO. At the very least you should look into who the founders are, how much traction they have, and what sort of token they are offering. Some ICOs are targeting investors with Google ads or awarding bonus tokens for investing within a limited time window. There is nothing wrong with good marketing tactics (they can indicate a good team) but recognize when they are being used against you.
3. Only invest what you can afford to lose.
ICOs are an extremely high risk investment. You should only invest discretionary
income and they should be a small part of your overall investment strategy. Billionaire investor Mark Cuban recommends investing no more than 10% in bitcoin. Treat ICOs with even more caution. The majority of startups fail, even well funded ones, so be prepared to lose what you invest, even if the landscape is optimistic.