As basic as this may seem, some investors still overlook the key points to watch out for before placing bets on the growing number of projects in the crypto scene. There should be a set of parameters an investor watches for before considering an investment in a risky environment such as this one, no matter how small the amount.
Below are some of the critical criteria to assess when evaluating any initial coin offering ICO. Neglecting any of these factors could cause significant financial losses.
Team
Credibility matters a great deal. Who are those behind the projects and what do their profiles look like? The record of associated individuals or organizations that a project works with often speaks volumes.
Billionaire investor Warren Buffett often says that he invests in managers, not in companies. A brilliant team is crucial; it can make you a millionaire, while a poor one can cost you everything.
Whitepaper
Right from the logo design to how critical points are articulated in a whitepaper - which is basically supposed to be simple to understand to a layman, a clue as to what is a team’s level of commitment to a project could be determined from the start.
Coin supply
How large is the total coin supply? How much is it diluted by the founders and senior investors? What is the inflation rate? Do the founders’ tokens vest immediately or after a period of time?
These are all vital questions because they can significantly impact the success of a currency. The right answers can also increase investor confidence; it’s possible that part of the reason for Ethereum’s success is that its founders vested over a three year period.
Some investors also use this information to work out their return on investment scale.
Roadmap
How do they plan on getting the project implemented? The timeline has to be realistic and consistent with the overall plans of the project as presented in their well-written whitepapers. Once they achieve their initial goals, what’s next?
Do they have a plan for the future, and are they adequately anticipating potential future problems? In some instances, investors tend to overlook certain aspects of the operation of the startups and are rather fixated on what is happening on cryptocurrency exchanges. This is probably changing as more questions are being asked about ICOs and new projects are coming up with better ideas.
Use case
This, of course, is a no-brainer and is most important of all. Investors have to ask themselves what exactly the product is intended to do and its potential popularity.
A token has no value if nobody wants to use it, no matter how good the team is or how exceptional the design.
An investor needs to get a clear picture of what the project is all about. It’s quite unfortunate that after an ICO, some investors are still asking the most basic questions in group chats.
Communication
In many cases, how much a project will communicate - internally and externally - when it is fully operational is usually hinted at by its pre-ICO communications.
Though some investors complain of less communication in terms of marketing and updates by teams after their ICOs, the clues were usually there long before.
While some teams are now employing the use of celebrities to up their marketing campaigns, investors need to be able to see through whether it’s a charade or just a resourceful way for the team to get the needed attention to a great idea.
There are many other unique factors to consider depending on one’s investing style and individual priorities. The questions above aren’t intended to be exhaustive, but merely a starting point. Any investor needs to do extensive research before betting real money.