There are a couple of ICO investment strategies that investors make use of in order to profit from the launching of new cryptocurrencies. These are primarily flipping and holding, which are two opposing methods with their usage depending on the ICO in question. Below we will go into more detail about both of these ICO investment strategies, as well as when you might want to flip or hold tokens.
This strategy involves buying tokens during an ICO and then selling them within a short time of being listed on an exchange. The idea being to make fast profits and exit. When assessing whether a coin might have good flipping potential, there are a couple of key points to look out for.
- Market Cap – If the ICO has a high market cap, it could mean that most of the demand for the token will be met with the ICO. This leaves less room for it to appreciate, meaning flipping might not be the best strategy. You should remember that the market cap size is relative, so compare it to existing projects in the same niche.
- Hype – Another important factor that works with market cap. For example, if a project has a low market cap and a lot of hype, there might be unmet demand. In this case, you may consider waiting a bit longer after the coin is listed on an exchange before selling as the price could be set to rise to meet demand. A good way to assess hype is by using social cues like Telegram members, Reddit subscribers, YouTube subscribers etc. CoinGecko have a great comparison table.
- Lock Up Period – This is how long the tokens will be locked up for before being distributed. Generally, tokens with a longer lock up period are less suitable for flipping because the crypto world moves fast and hype can fizzle out. When they are eventually listed on an exchange, there is limited demand and the price can fall.
To contrast, holding is a strategy used when you think the token could be worth a significant amount more several months or years down the line. When trying to make a decision about whether to invest long term, researching is the most important element. Here are some key areas to look into.
- Researching the Business Model – Check out their website, whitepaper and development roadmap to see how far along the project is. If it has nothing but a whitepaper and a flashy website, it is likely a lot riskier than a company with a working product. Check out the niche they targeting – what is the competition like? How big is the market? Does decentralization actually make business sense for the market? Does the project solve a real world problem?
- The Community – A strong community means better adoption and also development by committed people. Head over to the Reddit, Slack, Discord etc and see how active the community is, also ask any questions you have.
- Token Value – How will the token appreciate or provide value over time? Does it have utility within the platform? For example, if a token is used for transactions then this should drive demand and increase the price. Other types of token might reward holders with interest.
- The Team – You might have the best tech in the world, but without a good team to execute then the project will likely fail. Research the team thoroughly by Googling each of the members and looking at Linkedin profiles etc.
- Total Supply & Inflation – What is the total amount of tokens that will be released and is there any inflation? This is highly important for long term holding because it will dilute the value of your investment over time.
A Different Approach
In some ways, flipping can be higher risk than holding because it can be difficult to gauge factors like demand and hype. Additionally, in some situations as soon as the tokens hit the market they get dumped, leading to a price crash. This is usually due to whales – investors who hold a significant amount of tokens – manipulating the markets as they often buy back post crash. Some tokens will recover relatively quickly, whereas others might stagnate for a long time.
Equally, holding a token long term can be risky due to unforeseen circumstances and future volatility. It is pretty much impossible to predict what new regulations might come in or future hacks that could cause the markets to crash. There is also the possibility that superior tech renders a token obsolete in the future.
Thus, whilst sometimes it might be obvious whether you should flip or hold, a lot of the time the lines are blurred and the best approach might be a combination of the two. For example, if you decide to hold you might consider taking some profits by flipping a certain percentage of your tokens, usually to cover the cost of your initial investment. With this alternative ICO investment strategy, you will avoid regret if the project fails to gain traction.