What is an ICO?
An Initial Coin Offering is a method by which Founders can raise money for a new venture. Unlike conventional investments such as shares or bonds the investor has no call on the assets of the company, rather they have coins that can be used to buy services that the company produces.
For example, suppose I wanted to build a new burger restaurant called GuruBurger. Rather than risk my own money I could sell tokens (or coins) to “investors” that were worth One GuruBurger when I open up. I sell you tokens for $1 but I promise that when the GuruBurger restaurant opens (at some time in the future) I will be selling burgers for $2 and your coins will have doubled in value!
Being a savvy investor you can spot a problem. I need $7M to start GuruBurger (made from the vapour of pure thought) and you are interested in buying 1000 coins at $1. You cannot possibly eat 1000 GuruBurgers!
“No problem” say I. “You will be able to sell your GuruBurger coins to other people on a major coin exchange like CoinBase or Bitfinex. The demand for them is certain to be huge and you will be able to sell them for not the $1 you paid, or even the $2 that a GuruBurger is worth, but even more. What could possibly go wrong?”
What could go wrong?
These are just a few of the risks of “investing” in an ICO,
The GuruBurger team could take the money you pay for coins and disappear
This is an early stage venture, even if the team are honest they might find that they cannot actually make a burger from “the vapour of pure thought”.
If no-one actually wants to buy a GuruBurger then the coins will not be worth very much
If the GuruBurger coin is not listed on an exchange then you may not be able to sell them
Many teams are marketing ICOs as get-rich-quick schemes to retail investors. This is illegal and they could be closed down and their coins made worthless
What might go right?
There are upsides to ICOs
- They bypass accredited investor schemes and allow the ordinary Joe to beat the system (i.e. the system that stops rip-off merchants stealing their pensions)
- Early participants in a Ponzi scheme do get very rich
- The greater fool theory of investing has applied during 2017 and will probably hold for much of 2018.
- the team might create a good product that delivers values to customers and a fair profit to investors
The CryptoIndex Guru list of ICOs
Here I give a list of ICOs that might be of interest to the Guru’s disciples. Click the link to see his posts.
- Blockport is now Reasonably Liquid
- ICO Analysis of Blockport – Liquidity Issue
- Trident Launches ICO to Create Trident Coin Index Fund
- Why you Should Only Invest in Illegal ICOs
This site has great resources to help you learn more about passive investment in cryptocurrency indexes, funds and how manage your own portfolio.