How can I make money with cryptocurrencies?

Cryptocurrencies, digital money that is transforming the way to view transactions.  Blockchain, a decentralized ledger system on which these cryptocurrencies operate, is here to stay.  Arguably the concept of Cryptocurrencies is here to stay, as well. As revolutionary as they are, the space remains a speculative and extremely risky place for investment.  We’ve seen wild run up and quick crashes in the market over the last number of years.

If you are new to cryptocurrencies, Bitcoin and blockchain, you can read an introductory guide I wrote here.  Cryptocurrencies have made a lot of people a lot of money other the last number of years. But there’s a whole other domain of the crypto world that blew up in popularity starting in 2017 and has made many overnight millionaires even quicker.  Initial Coin Offerings; ICOs. Similar to the concept of an IPO, where an company uses crowdfunding to gain capital to produce and scale their product and company.

Many fortunes related to cryptocurrency occurred via ICOs last year.  Despite the opportunity, they hold even more risk than more traditional cryptocurrency investments like Bitcoin or Ethereum.  Since there is even less regulation around ICOs, literally anyone can start one up, and over the last year it has become evident that many projects were merely scams.

What is an ICO?

An ICO is short for Initial Coin Offering.  It’s a way for companies to raise capital to further develop their cryptocurrency, company or product.  Companies pitch ideas and show initial product prototypes in hopes of attracting more capital. This has shown to be a quick and effective way of generating money.  In 2017 over 5 billion dollars were raised via ICO. So far in 2018 there has already been over 6 billion raised.

The benefit to investors is they get in at a extremely cheap price with potential to gain 10X 100X and even 1000X their initial investment.  The risk is that, similar to an IPO, demand for, and proof of the cryptocurrency or product has not yet been shown. You could easily lose your initial investment if it was a scam, or does not take off.

This is still a great deal of opportunity and money to be made in the ICO space, but even more due diligence and discipline is required to safely navigate the ICO space.  Below are a few thoughts to keep in mind when evaluating potential investments.

Do I understand the product or service?  Does the product or service solve a real world problem?

These are the first things that I ask myself when a company or investment opportunity catches my eye.  First I must understand what they product or service even is. If it’s about some kind of technology or solving some kind of product I have no idea about I will not touch it.  If it seems interesting I may do some research and then reconsider, but otherwise I pass it by. You will not do the necessary research or be able to tell if its a legitimate opportunity if you do not understand the company or offering.  

Next, does this product or service solve a real world problem?  I am currently looking at ICOs related to the shipping industry.  I’ve read multiple times recently how the communication in the shipping and transfer business is complicated and ugly.  I also previously worked alongside a few shipping companies to sell them documentation technology years ago so I understand firsthand that blockchain can benefit this industry and that there is a real problem to solve.

Check the ICO cryptocurrency social media accounts

Everything is online these days.  That seems a little silly to say since I’m writing about digital money.  So you should be able to get a feel for the general consensus and see if the company of the ICO you are looking at is legitimate if they have a large following and are actively on social media.  Read reviews, read comments, and look how many followers these companies have.

While a scam artist could put lots of time into creating a legitimate social following, I believe companies that are transparent and active on social media is a strong sign.  You can also use social engagement as a type of fundamental analysis. If a company has tens of thousands of followers, this ICO has gained attention and should see favorite returns in the future.

Check ratings on industry websites

There are many websites, such as ICOtracker and CoinSchedule which rank and track ICOs.  These are good websites to find new ICO opportunities and also see how trustworthy they may be.  CoinSchedule for example gives each ICO a ranking on trustworthiness. It also has users giving positive or negative review or opinion on various ICOs.

Fundamental analysis and the way the mob is acting is very important in Cryptocurrency.  It’s important in all investing really. The majority can sway prices up or down whether its justified or not.  So always keep an eye on what the group is doing. You don’t have to follow their every move, but always know the trend.

Research the founders and developers

Who started the company, and who is behind it now?   Who is developing the product and who is advising the company?  These are all important questions. Look for seasoned experts in industries that align with the one the product or company has been created for.  Individuals who are well known in the cryptocurrency and blockchain community are important to have on board. Well known individuals will not put their name on something that isn’t likely to succeed, and definitely not a scam.

Is the website and white paper legitimate?

You can find tons of useful information on the company website of the given ICO.  There you can find founder and important employee information. You can also read about what the ICO plans to accomplish.  All legitimate ICOs and companies have a few things on their website.

1. White paper.  This is an outline of the math and technology behind the given product or service, and an indepth look at how milestones will be reached, and goals completed.  It also looks at further how funds will be used in the Road Map.
2. Road Map.  This is an outline of how funds from the ICO will be used.  It can also include future milestones to hit. Watch out for companies that have a large percentage of the funds going to marketing.  Legitimate companies will be putting money towards research and development.
3. A clean website format.  Cryptocurrency and blockchain companies are internet companies.  If it doesn’t look like time and effort has been put into a website, that’s an immediate red flag for scam in my mind.
4. Actual product use selling points.  If a company website can’t legitimately convince you why you should be investing with them.. Maybe it’s a sign you should look for another ICO opportunity.

Can you see how much the ICO has raised so far?

This is another transparency feat that is important to me.  A legitimate ICO opportunity should be open with how much capital they’ve currently raised. This is also a sign of how popular an ICO is.  The more popular the more chance it will gain traction.

How many coins or tokens will be in circulation?  How many given away during ICO

Coins that have huge numbers in circulation tend to be watered down and don’t have the potential to reach high numbers.  Think about it, if a coin that has a total supply of 200 billion reached $20, that would be a capitaliztion of 4 trillion dollars.  The entire crypto market isn’t even a trillion dollars. It’s not to say coins with large supply can’t be profitable, but they just won’t blow up quite like ones with lesser supply volume.

Another aspect to consider is how many they give away during ICO.  If a company is offering nearly all the coins in ICO there may be less demand for them once they go public, taking potential for further profit off the table.  It can also mean the company is not thinking long term and just wants to grab as much profit as possible – and potentially run.

Are ICOs a good investment?

ICOs definitely hold more risk than even traditional cryptocurrencies, which are still a volatile play in my opinion and should not hold too large a portion in your overall portfolio.  But with more risk comes more potential for reward. Use these types, do your own research and get educated before making any decisions.

If I’ve missed any glaring strategies you use to evaluate ICOs please let me know in the comments.  What ICOs are you looking at currently if you are a current investor, let me know!

Best of luck!

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