An initial coin offering (ICO) is a form of business financing based on the creation and distribution of a new cryptocurrency. Initial investors in a new business or venture, almost always related to the cryptocurrency or blockchain sector, are given a new cryptocurrency coin in exchange for their funding.

The intended use of these coins varies, where some are intended as exchangeable redeemable tokens, like an equity share, while others can be used to purchase the future services of the company.

Initial Coin Offering White Papers

The unregulated or lightly regulated nature of ICOs is one of its main draws for companies looking to avoid the strict formality of bank loans or exchange listings as a source of funding. However, the ICO community has developed a set of informal expectations for what constitutes a ‘proper’ ICO.

ICOs are expected to produce an extensive white paper that covers the reason for seeking financing, the intended use of the coins, the conduct of the offering itself and so on. These white papers face a reasonable degree of scrutiny within the ICO community, which is intended to weed out weak offerings and maintain the general integrity of the ICO process.

Day Trading an Initial Coin Offering

ICOs represent an excellent trading opportunity for day traders. Many ICOs see their coins rapidly grow in value after the initial offering. Day traders need to look closely at the intended use of the coins themselves and the rules that govern their use and exchange.

Final Thoughts

The formulation of ICOs and the use of their coins varies widely, but they all share the similar feature of being an alternative form of peer-to-peer financing based on the use of cryptocurrencies, and are almost always associated with companies or ventures in the blockchain sector.