It’s official — someone has officially become a billionaire by investing in Bitcoin.
Actually, it wasn’t just one person, it was two:
The Winklevoss twins.
If you saw the movie The Social Network, you might already be familiar with them.
Allegedly, they came up with the idea for Facebook — and whether that’s true or not, Mark Zuckerberg ended up paying them a multi-million dollar settlement.
Well, as it turns out, the twins took some of that money and invested it very wisely:
They invested it in bitcoin back when it was trading at just $250 — currently it’s trading for about $16,000 — and turned it into more than $1 billion.
That’s the power of getting in on a megatrend early.
With stories like this, many investors are looking for the next crypto-currency that might explode in value.
That’s why they’re diving into the market for what’s called Initial Coin Offerings (ICOs).
The thing is, if you’re not extremely careful here, you could lose your shirt.
So today, I’ll show you three simple ways to protect yourself.
Initially, ICOs were hard to find — and from a technical perspective, they were very challenging to invest in.
That’s why only very experienced investors and industry insiders were able to get in on the action.
But now ICOs are popping up in places you might be more familiar with…
For example, we’re starting to see ICOs featured on crowdfunding websites — like the ones we feature here on Crowdability.
But this access is a double-edged sword:
On one hand, providing all investors with access to exciting crypto projects could give folks like you tremendous profit opportunities…
But this access could also be a recipe for disaster.
That’s because, unlike the market for Initial Public Offerings — or even start-up investing and equity crowdfunding — the market for ICOs is unregulated, with virtually no oversight from the SEC.
And that means investing in ICOs is like being in the Wild West:
Illegitimate companies are conducting ICOs to raise tens and even hundreds of millions of dollars…
And even most of the legitimate ICOs aren’t worthy of your investment.
Bottom line: if you’re not very familiar with this space, you could suffer serious losses.
But hopefully we can help protect you from that.
Three Warning Signs
As you start to look at ICOs, here are a few “red flags” you need to watch out for:
Red Flag #1: No Product
Companies conducting ICOs tend to be very young. Basically, they’re start-ups.
Most have few employees and fewer profits — in fact, the vast majority don’t even have any revenue coming in the door.
But in most circumstances, for you to consider an investment, the company should have a working product.
We’ve looked at dozens and dozens of ICOs this year, and about 90% of them hadn’t even built a functioning product.
Instead, they had what’s called a “White Paper” — which is just a fancy, techno-jargon filled document describing what the company hopes to build some day.
Many of those companies raised tens of millions of dollars in their ICO, and created highly valuable crypto currencies…
But because they’re based on little more than “smoke and mirrors,” we believe most of these companies will go belly up and leave investors with nothing — just like what happened with the “dot-bomb” companies of the late 90s.
Red Flag #2 — Overseas Ventures
Crypto currencies are independent of any sovereign nation or governmental control.
Because of that, the companies behind them are free to set up operations anywhere in the world.
Many companies will therefore set up in countries that are more tax friendly than the U.S. — and where U.S. financial (and criminal) laws do not apply.
The motivation here isn’t always nefarious, but it’s something to keep an eye on:
Investing in ICOs where the company is based in a developed country with strong financial regulation is a good sign that it’s looking to build a real business, instead of just running off with your cash.
Red Flag #3: Lies & Omissions
In the U.S., any company raising capital — even the tiniest start-up — is legally bound to disclose all material facts about its business.
If it doesn’t, it can face significant financial and legal penalties.
But because the crypto markets are unregulated by the SEC — and because many of the companies behind them are located abroad — you need to be extremely diligent in your fact-checking and research.
For example, a few months ago, we were looking at an ICO from a Chinese company.
At first blush, it looked very promising:
It had a big, experienced team that’d just won an award for its idea at a major industry conference…
It claimed it had just recruited a top executive from Samsung to join its team…
And because of that executive, it said it had been able to lock down a partnership with Samsung.
But after digging in, we soon noticed some strange signs:
First we realized that the photos the company had taken at the industry event were doctored — this company hadn’t been at the conference at all!
Then we couldn’t find any evidence that the company had recruited the “top Samsung executive.” In fact, this man doesn’t even exist.
Furthermore, no one from Samsung had even heard of this company.
Again, when investing in ICOs, you need to be very, very careful..
So What Should You Do?
We’re not saying you should avoid ICOs entirely…
After all, there are huge gains to be made here.
We’re just alerting you to the fact that you need to be very careful:
First, watch out for the “red flags” we outlined above…
Then, source potential deals from some of the higher-quality ICO platforms that have recently emerged.
For example, if you’re an accredited investor, you can find ICOs on CoinList.com.
CoinList was launched by the team that runs AngelList — one of the top equity crowdfunding platforms in the world. CoinList is based in the U.S., and it has some of the most sophisticated investors in the world pre-vetting ICO opportunities for you.
And if you’re not accredited, you’ll soon be able to find ICOs on a recently-launched site called Republic Crypto.
Republic is part of the AngelList family — and while it doesn’t have any ICOs listed yet, it should soon.
Also, in 2018, we’re planning to recommend a number of ICOs to members of Crowdability.
We’re very excited to keep you posted.