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Risk And Rewards Of Investing In ICOs

ICO risks and rewards

October 29, 2020 | 

JOHN K MWANIKI |  0 Comments| 



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Initial Coin Offering (ICO) is currently the top rising means to raise funds by companies. Companies are starting up use cryptocurrencies to raise funds. They sell investors tokens of the crypto and, in turn, gain a stake.  

So far, ICO has been successful. For that, it's been rising. It is almost threatening to displace Initial Public Offering (IPO) as the primary fundraiser.

As a new way of operation, the venture has both the right sides and concerns. Here are the risks and rewards you need to know when using ICOs

Risks of Investing in ICOs

  • Unassured Returns

Like any other venture, traders are always looking for a return on investments. Trading in ICOs, for now, is a big gamble. It is one of the most uncertain industries due to volatility

As a new development, blockchain technology is yet to become mainstream. Most traders still don't know what to make of the new platform. Some even believe that fiat is king, while others embrace it. It means there is always the possibility of changes within the system.

The only way to follow is by investing what you are willing to lose. 

  • Possibility of scam

Scams in ICOs are not new. Unlike IPOs, ICOs don't have a lot of documentation. They don't have records an investor can use to understand the company's performance.

Investing through ICO becomes a matter of faith. People have lost money before through investments. The Securities and Exchange Commission (SEC) has been stopping most suspicious offers. 

The best way to keep safe is to do due diligence before investing. Understand the offer and reject anything too good to be true. Also, look around for user reviews.

  • Tax issues

Investing in ICOs comes with several tax concerns. As a new product, various countries are yet to settle on what to consider ICO. While some treat it as equity, others classify it as prepaid goods. Others also describe it as a debt. 

The different classifications make it hard to file returns. You might have to look for a tax expert. You don't want to have problems with the government over tax. It has several consequences, like fines and jail terms. 

  • Security risks 

Blockchain technology is a fully digital venture. This makes it susceptible to cyber attacks. Cybercriminals are always looking for ways to access accounts and steal the tokens.

So far, they have devised several theft methods. The most widespread is Phishing. They look for ways to steal the user's identity to access an account. 

It's important to ensure online security protocols when using ICO. Avoid clicking on suspicious links, more so from the emails. You also need secure operating platforms. Only use personal computers to access digital money accounts.

Of all the issues, the regulatory concerns are the most pressing. With regulations in place, every other thing falls in place.

For now, the industry is less regulated. This allows fraudsters and other entities to run rogue. There is no control measure for security and returns.

The different countries are still working to come with regulations. It is the only way to ensure investor protection.

Rewards Of Investing in ICOs 

Even though there are several concerns about using ICOs, it's not all bad. The fundraising method comes with several benefits. This explains why it has been ever becoming popular.

Here are the benefits of using ICOs;

Easy to Invest

One of the reasons for the popularity of ICOs is the ease of the whole process. Unlike IPOs, it does not provide for several requirements. You don't need to have a specific amount of money to invest. You also don't need any proof.

Virtual currencies have liberated the investment world. It has changed it from a few elite to the common trader access. That is why blockchain technology is the future of investment. 

Global Access

Anyone can trade in any token irrespective of the country. You only need internet access to invest. This is different from an IPO that has been a reserve for a specific country.

Investing in an IPO from a different country requires a broker. It also comes with several limitations. These might be costly in the long run. That is why the current global access model resonates with traders. You don't need any broker or special training. 

Global access is excellent for those looking to diversify investments.

Less competition

The traditional investment has been a reserve for the few. It means different companies were fighting for the few investors. The investors also had limited companies. The results were a constant straining to find the best company and investors match.

This is different from ICOs. Companies have access to more potential investors. There are also various projects coming up. Millions of ICOs happen yearly. The other choices mean one can invest in any project. Having options also helps in spreading risks. 


Like with reduced competition, ICOs come with more access. IPOs are mostly for institutional investors. They tend to hear of possible offers early enough. By this point, they gain all the benefits by being an early investor. It's only when there is a need for more funding when the shares go to other regular investors.

For ICOs, there is no preferential treatment. Anyone with an internet connection has access to the token off from the time of launch. The openness means you have total control over your investments. You also don't risk missing out due to lateness.

Bottom Line

ICO has become a reliable fundraising means. It is beating IPOs and equity holding. Even though most people relate the success with the crypto boom, there's more to it.

ICO comes with several advantages. It had opened up the investment space for everyone. Owning an asset in whichever country has never been so easy. By clicks of a few buttons, someone from Sudan can be an investor in the USA in USD. It also comes with other benefits like openness and reduced competition.

Even though they have been successful, ICOs also comes with concerns. Being online based makes it susceptible to hacking. The lack of regulations also makes it risky for most traders.

Still, investing in ICOs is worth it. You only need due diligence. Take time to research more on any project. 

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