Cryptocurrency is often in the news, and one of the things that has recently been causing a stir are initial coin offerings, which are known as ICOs. In theory, it is possible to earn very large returns if you invest an ICO, but what are they, and are they safe investments?
An ICO is simply a way for new cryptocurrencies to raise the initial capital that is needed to launch a new coin or token. An initial release of the currency is offered to early adopters in return for an investment made in either conventional currency, or more usually, in other cryptocurrencies cryptocurrency market.
An ICO works in a very similar fashion to a crowdfunding campaign. The cryptocurrency business will usually publish full details of how the new currency is going to work, along with the details of what other currencies will be accepted as an investment in the initial release of the coin and what the time limit will be on the offering.
The idea behind an ICO is no different from that of the first public offering of share that company will make. In a traditional initial public offering (IPO), a company will offer shares for sale to the public to raise capital.
In both cases, a minimum total capital raised figure will be set and, if that capital is not raised within the given timescale, the offer will be withdrawn and any funds that have been raised will be returned to the investors.
Currently, ICOs are perfectly legal in most countries, although China and South Korea recently banned them, because they were not being regulated under the very strict financial regulations of those countries. ICOs fall outside the regulatory framework in most other countries as well, but most people agree that it is only a matter of time before ICOs are brought under the umbrella of statutory financial regulation.
In 2017, more than $1.8 billion was raised through initial coin releases and, even though there were some failures, there were many cases where both the cryptocurrency and the investors achieved their objectives.
For the investors, the appeal of this type of investment is that, when the crypto currency begins full operation, the value of the coins or tokens will increase sharply, leading to high return on their initial investment.
Like all investments, though, you need to know what you are doing if you going to risk your money with a new cryptocurrency, particularly as ICOs are currently unregulated. That means doing your own research and finding out all the background information that you can about an offer.
While returns on some Crypto currency ICOs have been exceptionally high, it is important to remember that there is no such thing as a guaranteed get rich quick scheme and there is risk involved in any type of investment, so you should only ever invest what you can afford to lose.
That said, there are many investors who have enjoyed returns of many times the original sum that they invested in an ICO. However, as any successful investor in any market will tell you, the key to successful investments is not to do put all your eggs in one basket and to do your background checks diligently.