ICO and IDO in a Bear Market: What You Need to Know
While most token sales flourished in a bull market, it's crucial to tread with caution with ICOs and IDOs during a market downturn.
In the heyday of ICOs, the main challenge for investors was simply getting a spot in a token sale due to overwhelming demand. Every project, regardless of its name or purpose, offered significant returns.
But, with the token sale frenzy and the bullish crypto phase now behind us, we prepared a guide on optimizing investments in ICOs and IEOs to remain profitable, even amidst a bear market.
Token Sale Trends and Insights
According to Cryptorank.io, the average returns from recent token sales on most launchpads have ranged between 0.1X and 1.5X of the initial investment. Considering many projects offer extensive token vesting periods, releasing just 10-20% of tokens during listing, investors often don't realize immediate returns.
Recent Token Sale Profitability Source: cryptorank.io
Surprisingly, on Coinlist, a prominent ICO platform, three out of their last four token sales over three months have underperformed. Chainflip has failed to attract the required number of participants, marking the first such occurrence in the past two years.
These developments hint at the need for investors to be discerning and not dive into every token sale. Yet, by following certain best practices, one can craft an effective strategy for participation in ICOs and IDOs.
Picking the Right Launchpad
A launchpad is the platform where token sales are initiated and conducted. They can vary from specially designed platforms to decentralized exchanges (for IDOs) or centralized exchanges (for IEOs).
For a comprehensive overview of different launchpads, along with information on past and upcoming token sales, Cryptorank's "Launchpads" section is invaluable. Platforms can be sorted by several metrics, including profitability, the number of sales, token market capitalization, and the total funds raised.
When scouting for a reputable launchpad, it's crucial not only to consider the overall performance but also to scrutinize the outcomes of the most recent ICO/IDO/IEO held. This will offer insights into the current market condition and the success rate of token sales on that specific platform at a particular time.
List of Prominent Launchpads for IDO/ICO/IEO Source: cryptorank.io
Trends and Hype
During the peak of meme tokens, numerous projects incorporated terms like “SHIBA” or “DOGE” into their names. In the current bearish crypto market, this pattern persists: projects that align with contemporary themes often reap the most significant profits.
For example, earlier this year, tokens with names such as “AI” or “GPT” surged in popularity due to the growing interest in artificial intelligence. Investors were often drawn not by the underlying technology but by the allure of a trendy name.
Though chasing trends doesn't guarantee success, hype has consistently fueled the liquidity of crypto projects. Therefore, in a bear market, a crypto venture's branding and focus become critical indicators of potential success.
Fundamental Project Analysis
On our official website, there's a detailed article on how to conduct a fundamental analysis of projects. For those considering token sales, here are pivotal factors to evaluate before investing:
- Initial Capitalization: You can deduce this by multiplying the token's initial circulation by its listing price. A sizable initial capitalization, say over $5 million, suggests limited room for profit, especially in a market with constrained liquidity.
- Tokenomics: The spotlight here should be on the release schedule of tokens. A rapid influx of tokens to the market can depress the asset's price.
- Smart Contract Scrutiny: This assessment ascertains whether tokens are appropriately locked in line with their tokenomics, identifies potential emission increases, discerns significant holders, and provides insights into asset management strategies and other on-chain metrics.
- Crypto Exchange Evaluation: If you're privy to which cryptocurrency exchanges will list the token, delve into the liquidity and trade volumes of these platforms. This insight will give a clearer picture of the robustness of their internal market-making processes.
- Team Assessment: Delve into the credentials of each team member to gauge their expertise in the context of the project.
Lastly, a thorough examination of the project's marketing endeavors can offer a glimpse into the token's potential future demand.
Prolonged Vesting: A Warning Sign
For many projects that launch via ICOs or IEOs, the act of listing on exchanges often overshadows other aspects. This event doesn't just receive the most attention, but also the lion's share of the promotional budget. However, this is concerning because many startups neglect their developmental commitments, choosing instead to abandon their project after its listing.
Therefore, it's inadvisable to invest in projects with a long vesting period and only a few coins released during the Token Generation Event (TGE) or when it's listed on an exchange.
Basic Money Management
Even when all indicators seem positive, one shouldn't put more funds into a single token sale than they can afford to lose. Numerous projects offer a range for investment, giving investors the choice to decide on an amount they are comfortable with for a particular ICO or IDO. This flexibility is a valuable risk management strategy because it eliminates the need to always invest the maximum amount in every venture.
A balanced approach is to treat every token sale with the same level of risk, allocating an equal sum to each. This way, your funds are spread out, and the risk is managed effectively. For instance, if you were to invest in three IDOs each at $50 and all of them fail, a single successful token sale with returns exceeding 3x can compensate for the losses.
In general, it's wise to dedicate no more than 15% of your total balance to token sales. This ensures you have ample leeway to participate in other cryptocurrency ventures.
