There has been a lot of press lately about plunges in cryptocurrency. Even Bitcoin, the trailblazer for the cryptocurrency craze, has seen an extraordinary plummet, so much so that anyone that tried to cash in during their rise will most likely have lost most, if not all, of their investment.
“Even with all this negativity regarding cryptocurrencies, the underlying issue, the initial coin offering, does still interest savvy investors,” explains Richard Cayne of Meyer International. “You just need to be wary and not jump in just because everyone else is.”
Initial Coin Offerings: a license to print money?
Initial coin offerings are another method for companies to fundraise. A company creates a token, assigning a value to it. Typically, this would be utility token, meaning that the token can only be used for that company’s product or service. Consider it like a high-tech voucher that may increase in value. The other type, security tokens, are more akin to regulated financial instruments such as stocks or bonds, so they are usually more scrutinized by regulatory bodies.
ICOs for utility tokens are often leveraged by companies as investment vehicles that avoid having to issue stock or to pay out interest / dividends. While this may help the companies raise funds and increase a customer base, the investor must know what they are getting in return. How can the investment be monetized, if at all? Will there be a demand for these tokens, increasing their value?
Investors need to look past the novelty of ICOs
We’ve talked about FOMO, the fear of missing out, and how it can drive people to make rash investments. But this is your nest egg we’re talking about – just because there’s excitement about the latest ICO, doesn’t mean it will be successful. Do your homework, and when it comes down to it, ask someone like Richard who spends their career watching these trends.
“Of course, I get excited when I hear about a potentially hugely profitable investment vehicle like these recent ICOs,” says Richard. “But such decisions shouldn’t be made on the spur of the moment. You need a clear head and the right information first.”