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ICO Investing: How to Purchase Initial Coin Offerings

By Samuel Becker · August 11, 2021 · 5 minute read

We’re here to help! First and foremost, SoFi Learn strives to be a beneficial resource to you as you navigate your financial journey. Read more We develop content that covers a variety of financial topics. Sometimes, that content may include information about products, features, or services that SoFi does not provide. We aim to break down complicated concepts, loop you in on the latest trends, and keep you up-to-date on the stuff you can use to help get your money right. Read less

ICO Investing: How to Purchase Initial Coin Offerings

One key to investing success? Getting in early. Imagine being among the first investors in a tech giant like Google or Facebook, for instance. Or, think about what your life would be like if you had the chance to purchase ICO (initial coin offering) assets for a mammoth cryptocurrency like Bitcoin or Ethereum?

Your portfolio would probably look different, right? Well, there’s always a chance that you can get in on the next big IPO or ICO.

In this piece, we’ll discuss ICO investing, how to purchase ICO coins, and where to find ICO listings. In short, if you’re still all “IDK” about ICOs, you’re about to get a crash course.

What Are ICOs?

ICOs are similar to IPOs, initial public offerings that mark the first time that the public can purchase the stock on an exchange. The big difference is that ICOs concern the public sale of cryptocurrencies, while IPOs concern stocks.

Recommended: How to Buy IPO Stocks

And just as some investors take part in IPO investing, they can take part in ICO investing, too. That basically means buying a stock, or a cryptocurrency, as soon as it hits the market, with the expectation (or hope) that it increases in value.

ICOs have become a large market. From 2016-2019, more than 7,400 ICO attempts took place, raising a collective $35 billion.

How ICOs Work

Companies IPO, or go public, in an effort to raise money. They’re essentially selling pieces of their ownership for cash. The same logic applies to ICOs, which are crowdfunded efforts to fund a new cryptocurrency.

An ICO is an “initial coin offering,” and allows crypto investors to get in on the ground floor of a cryptocurrency startup. These investors are among the first wave piling into new crypto, and as such, stand to potentially benefit the most if (and it’s a big “if”) the crypto in question appreciates in value.

As for how an ICO actually works? It’s different from an IPO, which has a very standard process involving multiple parties and regulators. Bringing crypto to market is more of a do-it-yourself process. In short, the person or team behind a new crypto outlines their plans in a white paper for the new system or crypto explaining what it is and how it will work.

After that, the crypto creators focus on a marketing push to get people to invest and buy into the currency. Those who opt to participate and become investors will exchange money for the new project’s coin or token.

Cryptocurrency creators collect money from some investors by making the coin available pre-ICO for sale. During this period, they typically issue coins at a discounted value, often in order to get capital to continue building out the currency.

This is, of course, a basic overview—things can get much more granular. But this should give you an idea of how ICOs work.

How to Value ICOs

IPO valuations typically reflect careful research into the underlying company’s books and performance. The process of valuing ICOs is different, since there is no underlying company with financial records to comb through.

As such, hype and investor sentiment represents a big underpinning of ICO valuations. Crypto assets, in general, derive their value either from functioning as cryptocurrencies, or security or utility tokens for specific networks and systems. That makes it difficult to determine a monetary value out of the gate.

Investors typically determine the value of an ICO value based on potential uses the coin may have in the future that could lead to price appreciation. The more hyped investors get, the higher potential values can soar, but the reverse is true as well.

Research shows that negative investor sentiment can lead to negative first-day returns for an ICO, which can impact the performance of the currency for at least six months.

If that sounds risky, that’s because it is. ICOs are a notoriously risky investment. Hype men and con artists can easily take advantage of investors with little knowledge of the crypto space, and government regulators are still trying to figure out their role in the space.

Yes, SoFi offers crypto trading.

With 30 coins to trade from and no-fee crypto purchases1, our app offers a secure way to trade crypto 24/7.

Get up to $100 in Bitcoin after your first trade2.

How To Buy ICO Tokens in Four Steps

Wondering how to buy ICO tokens? Follow these four steps:

Step 1: Register for the ICO

The first step to purchase ICO offerings, or getting in on the ground floor of a new cryptocurrency as an investor, is to do a little homework. That means tracking down new and potential ICOs, and maybe even reading through some white papers.

In addition to reading the white paper, you’ll want to learn everything you can about the development team behind it, and whether it has attracted much interest from other investors. If the white paper does not have details about token’s code or security features that’s a potential red flag that may require more due diligence.

Once you’ve found an upcoming ICO that appeals to you, sign up to take part in it. This may require some legwork, but you can track down a pre-ICO list and ICO listings on sites like CoinDesk, ICOBench, TopICOlist.com, ICODrops.com, and CoinMarketCap.

Each ICO typically has different registration procedures. So, if you’re interested, poke around to learn the appropriate procedure, and follow it as needed.

Step 2: Set Aside Funds for Payment

Next, you’ll need to prepare to actually invest when you’re ready to put some money up. This means having money set aside in order to facilitate the investment.

You’ll need to have either fiat currency, such as dollars, or some other crypto ready to make an exchange, as needed (typically, either Bitcoin or Ethereum, the two biggest cryptos). You’ll also need to have money and or crypto standing by in a digital wallet so that you can make the trade.

Recommended: How to Send Bitcoin to Another Wallet

And finally, be sure that you’ve joined the appropriate or correct crypto exchange for the ICO. Some exchanges only allow investors to trade certain cryptos. You’ll want to be sure the ICO you’re targeting is listed on the exchange you’re working on.

Step 3: Make the Exchange

This part is pretty simple: Execute the trade! The specifics here will depend on the individual ICO, exchange, and procedures.

Step 4: Receive and Store Your ICO Purchase

Ideally, after the execution of the trade, your new coins will go right into your crypto wallet (whichever of the many types you choose) for safekeeping. Then, it’s a matter of sitting back and letting the market dictate what happens with your new investment.

Keep in mind that ICO investing is inherently risky, and there’s a good chance that things could go sideways. For that reason, it may be worth it to closely watch the ICO and other news around the new crypto, so that you can make wise decisions about when or if you should sell. One upside to ICOs compared with IPOs is that there’s no IPO lock-up period preventing sales.

The Takeaway

Investing in ICOs brings with it big risks that all potential investors should understand before putting their money into this type of investment.

If you’re ready to start building your crypto portfolio with ICOs or existing cryptocurrencies, a great way to start is by opening an account on the SoFi Invest® brokerage platform. You can use the app to start purchasing crypto as well as other types of investments such as stocks, exchange-traded funds, and even IPOs.

Photo credit: iStock/ismagilov

SoFi Invest®
The information provided is not meant to provide investment or financial advice. Investment decisions should be based on an individual’s specific financial needs, goals and risk profile. SoFi can’t guarantee future financial performance. Advisory services offered through SoFi Wealth, LLC. SoFi Securities, LLC, member FINRA / SIPC . SoFi Invest refers to the three investment and trading platforms operated by Social Finance, Inc. and its affiliates (described below). Individual customer accounts may be subject to the terms applicable to one or more of the platforms below.
1) Automated Investing—The Automated Investing platform is owned by SoFi Wealth LLC, an SEC Registered Investment Advisor (“Sofi Wealth“). Brokerage services are provided to SoFi Wealth LLC by SoFi Securities LLC, an affiliated SEC registered broker dealer and member FINRA/SIPC, (“Sofi Securities).
2) Active Investing—The Active Investing platform is owned by SoFi Securities LLC. Clearing and custody of all securities are provided by APEX Clearing Corporation.
3) Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.
For additional disclosures related to the SoFi Invest platforms described above, including state licensure of Sofi Digital Assets, LLC, please visit www.sofi.com/legal. Neither the Investment Advisor Representatives of SoFi Wealth, nor the Registered Representatives of SoFi Securities are compensated for the sale of any product or service sold through any SoFi Invest platform. Information related to lending products contained herein should not be construed as an offer or pre-qualification for any loan product offered by SoFi Lending Corp and/or its affiliates.
Crypto: Bitcoin and other cryptocurrencies aren’t endorsed or guaranteed by any government, are volatile, and involve a high degree of risk. Consumer protection and securities laws don’t regulate cryptocurrencies to the same degree as traditional brokerage and investment products. Research and knowledge are essential prerequisites before engaging with any cryptocurrency. US regulators, including FINRA , the SEC , and the CFPB , have issued public advisories concerning digital asset risk. Cryptocurrency purchases should not be made with funds drawn from financial products including student loans, personal loans, mortgage refinancing, savings, retirement funds or traditional investments. Limitations apply to trading certain crypto assets and may not be available to residents of all states.
Investing in an Initial Public Offering (IPO) involves substantial risk, including the risk of loss. Further, there are a variety of risk factors to consider when investing in an IPO, including but not limited to, unproven management, significant debt, and lack of operating history. For a comprehensive discussion of these risks please refer to SoFi Securities’ IPO Risk Disclosure Statement. IPOs offered through SoFi Securities are not a recommendation and investors should carefully read the offering prospectus to determine whether an offering is consistent with their investment objectives, risk tolerance, and financial situation.

New offerings generally have high demand and there are a limited number of shares available for distribution to participants. Many customers may not be allocated shares and share allocations may be significantly smaller than the shares requested in the customer’s initial offer (Indication of Interest). For SoFi’s allocation procedures please refer to IPO Allocation Procedures.

1 SoFi will assess a fee for each crypto transaction outside of automatic direct deposit purchases. For more information, visit sofi.com/invest/buy-cryptocurrency.

You need both a SoFi Invest crypto account and a SoFi Invest active investing account to get access to no-fee crypto purchases with direct deposit. Active investing and brokerage services are provided by SoFi Securities LLC, Member FINRA/SIPC. Cryptocurrency is offered by SoFi Digital Assets, LLC, a FinCEN registered Money Service Business.

2 Terms and conditions apply. Earn a bonus (as described below) when you open a new SoFi Digital Assets LLC account and buy at least $50 worth of any cryptocurrency within 7 days. The offer only applies to new crypto accounts, is limited to one per person, and expires on June 30th, 2022. Once conditions are met and the account is opened, you will receive your bonus within 7 days. SoFi reserves the right to change or terminate the offer at any time without notice.

First Trade Amount Bonus Payout
Low High
$50 $99.99 $10
$100 $499.99 $15
$500 $4,999.99 $50
$5,000+ $100

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