Which ICOs to Invest in? A short guide on how to separate stars from lemons.

Which ICOs to Invest in? A short guide on how to separate stars from lemons.

By Pavel Leonov

There are seven hundred cryptocurrencies available for investing, and a large number of ICO’s in the pipeline, bombarding potential investors with online ads.

Whether you think of yourself as an investor, or trader, the question of which cryptocurrency to invest in is flabbergasting.

Everyone wants to catch the next Bitcoin or Ether, which will be appreciated by thousands percent.  But how to do it?

To make absolute assessment in ICO is difficult, and it was discussed in an earlier article.   Some investors argue that Bitcoin will be worth much more in the future; others argue that it will be worth zero.  Both sides have good points.

But regardless if you believe in the absolute value of Bitcoin and other cryptocurrencies or not, it is possible to make some observations about relative value of different ICOs.

It is true that all ICOs are equal, in the sense that they are all product of grass roots entrepreneurial initiative.  But some ICOs have more chances to take off than others. Here is an admittedly unscientific, but hopefully helpful list of relative ICO merits.

  • Size matters. Larger ICO tends to be better performing, and with bigger upside.  So, when considering two ICO’s in the market, go for the one of bigger size.
  • Limited supply is better. ICO’s where the number of currency is limited are better than the ones where it is not limited.   You obviously don’t want to give the backing team the ability to print as many as possible, because it will quickly turn into an MMM scheme.
  • Utility tokens are better than shares. ICO’s that do not clearly fall under the category of shares are better than the ones that might be construed as “securities” under the financial regulation.  In America, the Securities and Exchange commission is planning to crack down on Initial Coin Offerings.  Cryptocurrencies that look most like shares in a company are the most vulnerable to the regulatory risk.  It is best to stay away from those.
  • Stay away from China. Countries have taken different tack on the treatment of cryptocurrencies.  But it is probably safe to say that China will be a very unfriendly place to crypto investors.  Japan, on the other hand, is issuing licenses and is trying to stimulate economic activity.  Just like Japan is better than China or South Korea, Canada is better than the United States.  In Europe, Russia is probably better than the continental Europe.  Not only Russia is the birth place of Ethereum, Russia has cheap electricity, and such Russian luminaries as German Gref have expressed considerable support for the block chain technology.
  • Real world connection. Cryptocurrencies that are linked to real world, such as computer storage, electricity, or diamonds, are better than “generic” ICOs, which are backed only by mathematical algorithms.   This rule is a little counterintuitive, since the most popular cryptocurrency, Bitcoin, is not backed by anything beyond the rules of mathematics and by human enthusiasm. But Bitcoin is probably unique and is unlikely to be repeated.  Every next wave of successful cryptocurrencies tends to have more features, and more substance, than the previous iteration.   Ethereum, for example, expanded the concept of Bitcoin by creating the ability to write “smart contracts.”  One can extrapolate this logic, and hypothesize that future successful ICO’s should have more concrete substance than either Bitcoin or Ether.