Similar to an IPO, a process when the company’s stocks becomes available for the general public, an Initial Coin Offering is a process of a company issuing tokens to any retail investor that is willing to buy. Unlike IPOs, the ICOs are a product of the modern technologies, mostly based on cryptocurrencies, especially Ethereum. When compared to an IPO, we can clearly see that ICOs target a completely different profile of an investor – ICO investors are the ones that are looking into putting their money into a prospective projects, and they want to be the first ones to invest. However, IPO investors are generally the first retail investors, yet they are certainly not the first investors. Typically, before flipping an IPO, a company goes through series of investment rounds. Sometimes as many as six.
Advantages of an ICO
Initial Coin Offering is a great tool for the companies as it allows them to flexibly set up their funding process. A company may choose between issuing a static or a dynamic number of coins. Certainly a static number may give the potential investors some more confidence, yet a dynamic number can certainly result in a larger funding. As for the investors, they get a chance to purchase the tokens at a fixed rate, no matter how the demand is changing.
Reasons to invest into ICOs
As a smart investor, you always understand that there are potential risks involved. You also understand that there is a lot of data available and even if you look up various ICO rating websites, you still may not use this data to your advantage as the info can be sponsored, dated and so on. However, you also should understand that an ICO investment can come with some serious gains. Hence, if you are looking to add high risk and high return investments into your portfolio, it may actually be a good idea to look into ICO’s way. So, the main reason is diversification by taking a part in the high risk investments.
Reasons not to invest into ICOs
Lack of time is perhaps the main reason why one should not invest into ICOs. There is a fixed number of precious metals, and while analysing them takes time, you may be more or less sure that another type of metal may not start to be traded in the next couple of weeks. However, the story with ICOs is completely different. There is a significant number of ICOs already and even more of them are getting launched everyday. Studying and researching all of these ICOs is actually quite a time-consuming process. However, if you are still interested and cannot afford spending time, you may simply invest little amounts into some 100 ICOs, simply to diversify your ICO portfolio. However, be sure not to lock a large part of your equity.