Cryptocurrency is all the rage today, and for all the right reasons. With the miracle known as Bitcoin, the world first realized the potential of cryptocurrency. And the success of dozens of other coins has only strengthened this belief. At the same time, the danger of speculation and the “bubble” looms over our heads.
So, is it really desirable to invest in a new cryptocurrency? Initial Coin Offerings (ICOs) are a great way to promote a new cryptocurrency while raising money, and that’s how many successful coins began. But there are dark waters too. Let’s take a look at the pros and cons of investing in the new cryptocurrencies.
The Pros of Investing in the New Cryptocurrencies:
- High Returns, Almost Always: The one example companies love to give is that of Bitcoin: $1,000 in 2013 was worth $400,000 in December 2017. And many other ICOs have had a similar growth curve. Stratis, Spectrecoin and many others have grown many times over their initial value. So, if you invest in an ICO, chances are that you would be rolling in money.
- Less Waiting Time: While most investment assets like real estate, gold, oil, etc. require a lot of time to gain value, cryptocurrency could reach from the floor to the sky in a matter of months. In just 4 months, Datum raised $1.5 million in value. Most ICOs can grow exponentially in a matter of months, so no more waiting to get your returns.
- More Liquidity: While investment in traditional assets sounds good, there is one issue: you can’t control when to cash out. When the market drops, you have no one to buy your equity. However, in the case of cryptocurrency, this is never the case. If your cryptocurrency has built a strong network of sufficient users, you can easily sell your coins in return for either Bitcoin/Ethereum or dollars.
- You Know What You Pay For: A cryptocurrency might look like a startup in many cases, but there are some critical differences. For instance, startups are known to change their model and even product multiple times. What you invested in might differ drastically from what was launched. In case of cryptocurrency, however, you know exactly what you are investing in. Additional services might launch over time, but the main product remains the same. Thus, you can have greater faith in a cryptocurrency as compared to a startup.
The Cons of Investing in the New Cryptocurrencies:
- Market Volatility: If 2017 taught us anything, it’s that cryptocurrencies can fall at any time. A minor glitch, an attempt to hack, a rumor about falling off; any small incident can crash the value of a cryptocurrency. If you recall Bitcoin news, this cryptocurrency crossed a historic mark of $18,000 value before crashing down to about $12,000, in a matter of weeks.
- Product Failure: What many people don’t bother to know about is the underlying technology behind a new cryptocurrency. Sometimes, the product may fail to attract users, at which point it will be forced to shut down. Other times, new investors might stop coming due to a poor network, which will again crash the value of your coins.
- Lack of Resources: Cryptocurrencies need a constant supply of capital to keep functioning. Any point without the required capital can shut down the whole operation. Sometimes, despite raising money during ICOs, cryptocurrencies find themselves running out of resources at a later stage, due to reasons mentioned in the above point. This is why pre-ICO raising has become a common practice, which helps in determining if there is a market potential for a coin or not.
- Lack of Management: Like any startup or new venture, cryptocurrency could fall prey to bad management. Being based on blockchain technology (in most cases), the founders usually have a technical but no management background. Poor management can often lead to bad decisions for the company and affect you as an investor. To save yourself from such ordeal, always try to have a thorough background check on the founders.
- A Possibility to Waste Resources: Many investors believe that a startup (which a new cryptocurrency essentially) shouldn’t receive investments greater than what they need. If they have too many resources, they would feel compelled to use it. Not to mention, typically no product is ready during the ICO phase. So, the entire investment is made on the basis of the whitepaper and the word of the founders. A definite gamble, if there was one.
There is no ‘Yes’ or ‘No’ in the world of cryptocurrency, and much less for a new cryptocurrency. ICOs have statistically proven to be high-valued investments, yet they seem to go against almost every rule of safe investments.
In the end, it depends on your own good judgment and insight. We briefly described every possible advantage and disadvantage of investing in an ICO. Now it depends on you whether or not you want to take that gamble. Sometimes, it might just pay off, as it did for Bitcoin.