Ten ways to avoid an ICO scam
ICOs and crypto funding are radically altering the investment landscape. Startups and other projects raised $5.6 billion in 2017 through ICOs alone. It hasn’t all been plain sailing – the market still suffers from high volatility, with 2018 being particularly erratic. During the first quarter of 2018 the market capitalization of all cryptocurrencies lost at least $342 billion.
Despite this many believe that crypto funding is here to stay. Just take a look at the CFA Institute’s recent landmark decision (the CFA is a global association of investment professionals that distributes exams and awards credentials to professionals within the financial industries). Next year’s iteration of their three-tier exam will feature topics on cryptocurrency and blockchain. This is one of the strongest signals yet of cryptocurrencies’ growing importance.
But the field can still be a scary place. Lack of regulation has left the marketplace open to scams. In just the first 59 days of 2018, $1.36 billion was stolen via crypto scams.
So the big question is – how can you take part in the exciting world of ICO investment without getting scammed?
Study the white paper
The ICO promoter should have a clear business plan laid out in a white paper. It should answer the following questions:
- What your money will be used for
- How you will get your money back
- The rights you are offered under the coin or token
- If the blockchain is open, visible, and its code published
- If there’s been an independent cybersecurity audit
Avoid dodgy firms
The ICO process is nowhere near as rigorous as traditional funding processes. And most ICOs offer investors a stake in products and services that are yet to be launched. Meaning the likelihood of investing in a project that fails to launch is increased.
Is it too good to be true?
There’s no such thing as a sure thing. If an ICO campaign promises unrealistically high or guaranteed investment returns, then it’s almost certainly a scam.
Don’t believe the celebrity endorsements
Celebrities are not usually qualified investment advisors. Remember that a celebrity endorsement does not automatically mean that an investment is credible.
SEC-compliant ICOs are fairy tales
(The SEC is the US Securities and Exchange Commission.) Some ICO campaigns may give the impression that they are, or soon will be, traded on a registered exchange, and operate under strict SEC-compliant standards to promote high-quality digital assets to trade.
Any such asset is likely to be a scam. The SEC does not review the standards or any of the digital assets selected by these platforms. The same goes for other regulatory bodies.
Don’t chase discounts
If you see a seductive ICO offer with big discounts…be careful. People often choose which tokens to buy based on the discount provided -that is an easy way to make a wrong choice and end up paying too much and over the value. If you buy cheaply, you often pay dearly.
Beware of unsolicited offers
An unsolicited sales pitch can be part of a fraudulent investment scheme. Practice extreme caution if you receive an unsolicited communication from an unknown sender promising a golden investment opportunity.
There’s no rush
Fraudsters often try to create a false sense of urgency and hurry your investment along. Take your time and properly research a potential investment opportunity.
Pump and dump is a red flag
Fraudsters often try to pump up the value of an ICO through misleading statements. Then they dump it by selling their own stakes at the inflated price. The value of the coin falls and investors lose money.
Look out for the ASSET VERIFIED stamp
One of the main reasons that ICO campaigns can fall foul of scams? The lack of an independent third-party to carry out effective due diligence.
Asset Verification Protocol is the solution to this. It’s a streamlined process that carries out the necessary due diligence examination of a platform’s assets. If everything is legitimate, the platform is awarded the ASSET VERIFIED stamp, protecting both the platform and the investor.
Look out for the ASSET VERIFIED stamp. It’s proof that you’re looking at a verified investment opportunity.