Investing in Initial Coin Offerings (ICOs)
Initial Coin Offerings, or ICOs, are events wherein a company sells a new cryptocurrency to generate funds. Investors would get cryptocurrency for their monetary contributions. An ICO is the cryptocurrency version of an initial public hearing or IPO in stock markets. Although ICOs have good potential to make considerable profits, their lack of regulation makes it risky to get involved.
When companies want to have an ICO, they must announce the date, rules, and purchasing process beforehand. On the ICO’s date, investors could buy the new cryptocurrency. A lot of ICOs need investors to pay with another cryptocurrency. Bitcoin and Ethereum are the most common crypto payments. Also, some initial coin offerings accept fiat money.
In the buying process, money would be sent to a specified crypto wallet address. Moreover, investors give their recipient addresses to get the crypto they buy.
Nonetheless, ICOs are significantly unregulated. In the US, no specific regulations are applied to them. However, they are considered to fall under the Securities and Exchange Commission’s (SEC) jurisdiction and are regulated by federal security laws if they fit the classification of a securities offering.
Countries such as Nepal, Bangladesh, China, Macedonia, Ecuador, and Bolivia banned ICOs since they took a strict stance on this offering.
Even though ICOs are legal, they can still be considered illegal if they fail to pass the Howey Test from the US SEC, which determines if an offering is an investment instrument.
On the other hand, investing in ICOs could offer significant potential profits, primarily when determining which cryptocurrency is a solid investment. Since you would buy them early, they often cost less, as some offer tokens with discounts.
Furthermore, ICOs can be accessed by anyone because there are no restrictions regarding who is allowed to invest, unlike IPOs. Plus, it is a convenient and quick way for start-ups to make money.