Guideline on crypto investing: how to profitably park money in ICO and trade digital currencies
According to KPMG auditors, investments in U.S.-based blockchain startups over the first half of 2018 surged over the allocations made in 2017. What is more, analysts at Forrester Research claim that 90% of these projects wouldn’t be fulfilled. So, how to avoid common mistakes while crypto investing and spend your capital in a cost-effective way?
Types of scam
The Americans are not the only one interested in making big money by investing in blockchain startups. Russian Association of Cryptocurrency and Blockchain (RACIB) claims that 4 m blockchain related projects would exist in Russia in 2019. Currently, only 80% of them attract the needed investments via ICO. About 8% of blockchain projects appear to be a scam.
Scam projects are defined as those founded with the aim to trick out investors’ money and disappear not meeting the terms of an agreement. Such startups usually exist in three types:
- Simple. Thin deception whose authors neglect a website and send a mountain of spam. There isn’t much related information, and accounts in social networks are inactive.
- Complicated. The information about a team, an elaborated story, and a website are available. However, taking a closer look at the project, given information and its representatives prove to be fake. Attentiveness would help recognize fraud.
- Professional. It’s a difficult task to detect fraud since a project seems to be transparent, providing a whitepaper with a real team of developers. Famous people may get hooked on such startups.
For example, Centra Tech developers promised to design a system for crypto payments by bank cards. They paid Floyd Joy Mayweather Jr. for support and fundraised $32 m later trying to make off with money.
How to check a project
ICO investments are prospective but highly risky. To stay safe, one needs to refrain from investing all the money. Search for proven startups with attainable objectives. ICO checking may be troublesome but essential. Here is a list of project features to investigate before investing.
- Product. A startup lies not only in an abstract idea but concrete products, or an MVP (minimum viable product).
- Market. A niche and target audience affect the future of a project. If the sphere is specific, lack of funding may arise. In this case, a product and a good team wouldn’t help. Evaluate prospects of the market entrance, look into all possibilities. For example, the virtual reality market is estimated at $11.4 bn. The Russian investor that works with VR startups Roman Povolotskyi is ranked among five top successful business angels in Russia.
- Technology. Analysis of technologies used for a project would also be helpful. Understand whether they would be applicable within the chosen niche, assess feasibility of promised improvements and future demand for them.
- Team. In theory, the best direction of investment is a team you personally acquainted with. However, not everyone has such an opportunity. At early stages, check all available information about ICO authors. Make sure they are real (to prove it, reliable startups conduct video conferences from the office), find out about their previous experience, look up their accounts in social networks and real contacts (cell, e-mail).
- Jurisdiction. ICO’s place of registration is pretty important taking into account the difference of legislation in various countries. One takes a chance when investing in projects registered in the countries with an unregulated status of cryptocurrencies and blockchain. Taking legal advice is also a good idea.
Do not take the abovementioned rules as an ironclad guarantee to appear in the list of Russian successful business angels. However, they will help stay safe when choosing a project.
Guideline on sound investment
Not only investing in blockchain projects but also cryptocurrency trading may boost your fortune. Volatility (exchange rate fluctuations) is a distinctive feature of the cryptocurrency market, which allows to quickly get income or immediately lose it. Parking money in digital cash requires market analysis and sound capital distribution.
- Diversification. Any investor is expected to distribute money in various assets. It’s risky to park money in one coin. However, a wide range of different coins isn’t worth your time. If market analysis and sixth sense point on the prospects of a certain cryptocurrency, concentrate on it and accumulate investments step by step.
- Choose the right time. Stay cool, calm and collected and refer to market analytics in order to make the most profitable deals. Immediate income can lead to losses in case the real state of things was not considered. Nonetheless, sometimes choosing the right time is only half the job: take care to withdraw money in time storing it in a stable asset, say, fiat.
- Cryptocurrency storage method. Not all exchanges are equally reliable and user-friendly. Find your optimal method of cryptocurrency storage basing on personal experience, case studies of others, and your objective. It should be reliable and create a short-cut to the asset any time.
Crypto market develops at a breakneck speed, which makes it not only highly prospective but risky. When investing in ICO or certain currency, allocate only the amount of money you wouldn’t regret about in case of failure. Even having calculated risks and thoroughly checked of all aspects, remember about a chance of losses and coin drop.
It’s better to invest only if you have no doubts about your decision. Wait until a really worthy and secure startup emerges. What is more, the number of blockchain projects will continue growing. According to Celent and Nasdaq, 70% of IT heavyweights create their own blockchain projects.