The most fearful question every new investor in the world of cryptocurrencies and decentralized platforms is: will my investment be lost?, Can the Cryptocurrency Price fall below the purchase price?. Once, players in the financial world were big ones with lots of money. They were seasoned investors who knew what signs to look out for in a company. With the digital age and ease of transferring money, ordinary people like you and me can now invest in ICOs. Most people do not have an understanding and the art to invest, so the question is a fair one.
To answer that, we must first understand the concept of the ICO, its popularity, and then the reasons why a token or a coin’s value could fall below the ICO set value.
One must first understand the concept of ICO. Initial Coin Offering is often equated as the digital form of Initial Public Offering. Although the two things sound the same, they are not in the real world. Well established, private firms that wish to go public usually do IPOs. Nearly all ICOs are done by organizations that are yet to start their mode of business.
The ICO is a way of gathering finances and letting investors have a stake in the business. The platform team releases a limited number of coins. The tokens can have a fixed value, or an initial value that can rise or fall in trading.
Every day, there are new ICOs popping up on the internet. Thousands of organizations have jumped the bandwagon. Many will rise and fall; many will not rise at all. A few will make big waves. Perhaps the next Bitcoin killer is already in the market and we do not know which one is it.
According to Paul Sibenik, who works with AmaZix, a cryptocurrency consulting, community management & marketing firm for ICO’s, there’s a lot of factors which can cause this to happen. “The majority of ICO’s fail after the token sale concludes if they don’t manage to fail during the token sale itself. That’s why it’s so important to invest in high quality projects with a proper team and experienced advisors. The projects should also be solving an actual business need which can be monetized and which is feasible to develop.”
FACTORS MAKING PRICE FALL AFTER ICO
So, how do we know which crypto coin will fail and fall below its own minimum value set during an ICO? There are some indicators to watch out for:
- Product Offering: Look at the product they offer. Is it something that is already being done? Is there a need of that offering?
- White Paper: The white paper should have clearly defined goals and timelines.
- Hollow Promises: Is the team telling you that thy plan is well founded and strong, but fails to tell you the figures and statistics and is beating about the bush?
- Team: The team should comprise of well-known people in the finance and technology department. College boys and people with no past on the internet should raise flags.
A Cryptocurrency price could fall below their ICO value and people have lost money through this. Hence, most people tend to withdraw their investments and bounty rewards immediately after ICO, but actually, the best thing to do here would have been to trade the coins or wait till they increase in value. Some coins have increased very much within few days or few weeks after ICO. But since no one can predict the future, with tact and an understanding of what the coin offers, we can reduce the chances of our investment going bad.
But that’s not all you should be looking for according to Paul, who suggests the team and technology are the two most important factors. “Projects that heavily focus on multi-level marketing or heavily focus on you referring other people to the project are likely to fail sooner or later. Even if the project focuses on how much you would stand to profit or earn off your investment that can be a red flag.” He also suggests that larger projects or projects with a higher ‘hard cap’ aren’t always a better investment. “Most projects don’t really need to raise over $100M USD. Projects that elect to aim for modest amounts of $10-50M can often fair better in the long run as it can indicate they’ll be more prudent with regards to how they allocate funds raised.” Paul also states, “Plus they’ll find it a lot easier to hit their hard cap. When a campaign hits or gets close to their hard cap, there’s usually quite a few people who wanted to get in but ‘missed out’, which typically leads to a significant increase in demand (and price) once the coin or token starts getting traded on exchanges. In the past two weeks we’ve had two projects that we’ve worked with who managed to hit their hard cap, Restart Energy and Fort Knoxster, and I’m expecting both of these projects to be highly successful in the long run.”