And it is a bubble. The valuation of many of these projects is far beyond reason, and the evidence that many of the investors have no idea what they’re putting money into is abundant. And that’s without even getting into some of the outright fraudulent claims.
Yes, I totally agree. Even though the ideas presented can be very, very exciting, we can't give money away. Investing is highly different from liking. You don't buy a stock uniquely because the underlying company is good, if you do so you're doomed to loose money. You buy a stock because a good company is trading at an attractive price. Or so says Ben Graham.
To infer whether a price is attractive, you have to be able to evaluate a company. ICOs should be no different.
Even though start-ups are a whole different beast when compared to stocks, the rationale should be no different. The valuation technique might change, but the logic does not.
Investors need to understand that loving a business model and believing in it, is not a sufficient condition to enter an ICO. The price which you pay for it is of utmost importance, it can kill your investment.
Uncapped ICOs for instance have a high risk that is not related to the business. What if everyone buys into it ? The company will have to grow much stronger for you to make a profit. Perhaps, to unrealistic levels.
Obviously, there are many examples of crazy profts made on ICOs, that make us all excited about taking our piece of the pie. But rushing into whatever tokens are shown to us, is not the way to go.
With that in mind we've been writing several posts about ICO Valuation. Even though our series of posts is far from over, we plead investor to get more conscious about it, before a bubble bursts and ICOs are doomed. ICOs might be good. But we have to be conscious and technical about it. We don't want enough bad news out there to take it to a Red Zone from which it might never be able to recover.
ICO Valuation Series:
- ICO Valuation initial post
- How to spot an ICO Scam - ICO Valuation #1
- How to evaluate an ICO Team - ICO Valuation #2
Few ICOs Reviews: