Should I Invest in an IPO?

All the basics regarding digital currency.

If you have been keeping an eye on financial news, or even the regular daily news for that matter, you may have found that Bitcoin has made a splash in finance and investing. You have probably heard things like “invest in Bitcoin” or different opinions on how the Bitcoin market is doing, or the phrase “mining for Bitcoin.” What is Bitcoin? Why is it all over the news?

Bitcoin is part of a bigger financial movement called cryptocurrency, a digital cash system with a fairly recent birth. To help you grasp the idea, I’ve laid out the basics of cryptocurrencies including what they are, where they came from, and what to do with them.

What is Cryptocurrency?

Most simply put, cryptocurrency is digital money that uses cryptography for security. Cryptography is writing and solving puzzles. With the cryptography step, it is difficult to counterfeit. The currency does not have a central authority and can be used for a variety of things such as buying goods and investing.

The history of cryptocurrency begins with Bitcoin in 2008 and as of 2015, there were of 14.6 million bitcoins in circulation. Since its launch, cryptocurrency has found its way into many aspects of our everyday lives that we may not even be aware of. There are now several different kinds of cryptocurrency.

Cryptocurrency has the ability to make transferring funds easier between two parties. The transactions don’t cost much and allow users avoid high fees experienced when using most banks and wire transfers.

Before we go over the uses of cryptocurrency, let’s go over where cryptocurrency came from.

Where did cryptocurrency come from?

Let’s start from the beginning. Bitcoin was the result of a side project by Satoshi Nakamoto, the alias of an anonymous programmer and the inventor of Bitcoin. Bitcoin was the first cryptocurrency and remains one of the most important. In 2008, Bitcoin was launched as a peer-to-peer electronic cash system. In simpler terms, it is a digital currency.

During the tech boom of the 1990s, there were many attempts at digital currency in systems like Flooz, Beenz, and Digicash. Different problems arose, such as fraud, financial issues, and tension between companies, leading to their failures.

Bitcoin’s most important use was decentralizing digital cash. Before Bitcoin, there were many attempts at creating digital money with a central entity. In digital money, you need to network that has accounts, balances, and transactions. Most digital cash systems have a central entity to prevent double spending, a fraudulent technique involving spending the same amount of money twice. With a centralized server, an authority is needed to control funds.

Satoshi eliminated the centralized system which means every single person is needed to keep track of the funds. Through a blockchain, everyone in the network can see every account’s balance. Every transaction is a file with a sender and recipient public key and the amount of coins involved in the transaction. The transaction is sent with a private key by the sender in the form of cryptography. After confirmation, the transaction is then broadcasted on the network.

Miners can then confirm the transaction by solving a cryptographic puzzle. A cryptocurrency network is based on the consensus of the legitimacy of all of the transactions. If there is a disagreement, the network would fall apart. Luckily, there are many rules in place that prevent that from happening. The consensus-keeping process is protected by strong cryptography.

What can I do with Cryptocurrency?

What good would a currency be if you couldn’t use it for anything? Because cryptocurrency is digital, it’s not as easy as just pulling it out of your wallet and spending it at a grocery store, but we’re not far off.

Invest

Cryptocurrencies have proven to be effective at making many tech-savvy investors more money. With the help of financial advisors, many not-so-savvy investors have thanked cryptocurrency for their growing wealth. Many also enjoy digital cash to support the idea of one free, hard currency for the world.

Cryptocurrency can also be used to hedge your portfolio against the dollar.

Buy Goods and Services

Cryptocurrencies, mostly Bitcoin, can be used to buy some of your daily supplies. Many people use their Bitcoin to buy gift cards. Surprisingly, you can actually buy yourself dinner at some restaurants. Though there are not many that accept digital cash just yet, who knows when more will begin?

One of the biggest, and most useful, goods bought with cryptocurrency is real estate. Many countries offer the ability to buy the property and pay fees and taxes with Bitcoin.

Mine

Mining for cryptocurrency means verifying and adding transactions to the public blockchain. This is also how new coins are released. Anyone with internet access and the correct hardware can mine.

Miners compile recent transactions into blocks and solve the difficult puzzles used to protect the transaction. Whoever can solve the puzzle first gets to place the next block on the blockchain and claims the reward. The incentive to solve the puzzle is the reward which consists of the transaction fees and newly released coins.

Common Cryptocurrencies

There are now many different types of cryptocurrency, some more popular than others.

Bitcoin– This is the first and most common form of cryptocurrency.

Litecoin–  Launched in 2011, Litecoin is one of the first cryptocurrencies and is often referred to as the silver to Bitcoin’s gold. It is very similar to Bitcoin but it has a faster block generation rate which means faster transaction confirmation.

Ethereum– This cryptocurrency allows Smart Contracts and Distributed Applications to be built and run without fraud, control, interference, or downtime.

Zcash–  Zcash is different because it offers added private and selective transparency of transactions that are recorded and published on a blockchain.

Monero– Monero sets itself apart from other cryptocurrencies by focusing on obscuring sender, recipient, and amount of every transaction.

Dash– This is a more secretive version of Bitcoin, often called Darkcoin. It offers higher anonymity because it works on a decentralized master code network that is nearly untraceable.

Gram– This cryptocurrency will be used with the platform TON (Telegram Open Network) by the chat service Telegram. TON allows for quick transactions that take about the same time as a simple credit card transaction and is clear of fees.

What you need to know to make the right choice.

IPOs allow the public to invest in, and profit from, the growth of a company. Many investors are finding that IPOs are a great way to make money, but it’s not for those looking to make a quick buck. The focus of IPOs now is long-term investment.

There is a lot of discussion surrounding whether or not investing in an IPO is a good idea. Some say that there is too much risk in putting money into new company that they don’t know much about. Many ask the question, “Should I invest in an IPO? Is this right for me?”

There is no right answer to this question. There are many benefits and many have made a lot of money from investing in IPOs, but others have lost big when they didn’t do their research or the company just didn’t survive the competitive market. Alpen Partners is here to provide you with the tools to help make your decision. We can also guide you through different investment opportunities.

What is an IPO?

IPO stands for initial public offering. This is the first sale of the stock issued by a company to the public. Before the IPO step, a company is considered private. When stocks of the company are offered to be purchased by the public, it starts the journey as an IPO. The public is everyone else who wasn’t involved in the earlier stages of the investment process. An IPO is also referred as “going public.”

Advantages of investing in an IPO

IPOs allow institutional and retail investors to become shareholders in a once-private company.

There is a lot of appeal in investing in an IPO. There is a lot of potential to make a lot of money by buying stock at such a low price, especially if the company is successful.

By investing in an IPO, you are given access to unlisted stock. Yes, they will be listed on the secondary market eventually, but not at the low price that will be offered while an IPO.

Getting in at the ground floor can be an exciting and profitable experience for an investor. If you strongly feel that a company will be successful, investing in the IPO will allow you to benefit in the long-run and invest before the price of the shares go up. Some of the most successful companies experience as high as 1000% price increase or more in the price of stocks. In some situations, the price could even increase rapidly for short-term gains.

IPOs are attractive to many investors because they find that they can cash out on shares and get their investment back easily, creating liquidity. It can also allow investors to sell the share quickly with little transactional costs.

Why Some Investors Avoid IPOs

Though there can be a lot of profit made from an IPO, other investors are a bit cautious when it comes to buying unlisted stock.

One reason in investor may be skeptical to buy into an IPO is the lack of history. New-to-market companies don’t have the historical performance or data that can tell investors that this will be a good idea. In fact, there aren’t any financial records, because when the company was private, it wasn’t required to disclose any of that information. As an investor, you will have to predict how the company will perform post-IPO.

Volatile price fluctuations can come with an IPO. There have been times where shares fall more than 50% of an extended period of time. Since IPOs create liquidity, many company owners may sell their own stock, which doesn’t look good to some investors – leading them to sell their stock as well.

Tips

Do your research– Make sure you get as much information on the company as you can, which can be difficult when the company is in the planning stages of going public. Researching the company, competitors, press releases from the past, and overall success can be a good first step. Becoming familiar with the business in question, its business model, management team, and goals will allow you to make a smart decision on whether or not it’s a good idea.

When doing your research, you also want to know the risk that comes with the investment. After knowing how the company operates, you may feel comfortable enough to make an investment, but investing in a new-to-market company, like any security, cannot guarantee success. Many scenarios have landed investors with stocks that sell under the initial share price.

Choose a company with strong brokers– A company with a strong underwriter and investment bank is generally trustworthy, though that’s not guaranteed. Be careful with companies with smaller, unknown brokerages.

Be cautious– If you feel something is off, chances are it is. There is a lot of uncertainty surrounding IPOs, mostly due to lack of information and history. Not disclosing financial information may benefit the private company, but this puts investors on edge.

Alpen Partners as an SEC-Registered Advisor

Alpen Partners Wealth Management International AG, the sister company of Alpen Partners AG, is now a registered investment advisor with the U.S. Securities and Exchange Commission (SEC). Together with our partner Swiss private banks, our company can now offer the full Swiss private banking experience to American clients, both resident and non-resident.

Building on many years of experience in private banking in Switzerland, Alpen Partners Wealth Management International AG provides investment advisory services to U.S. clients. Swiss banking is highly regarded around the world, well-known for being sophisticated and discreet. In 2017, it was reported that $7.5 trillion in assets are held in Swiss banks, and almost 51% of that is generated from clients outside of the country. Choosing Switzerland as a banking destination is choosing years and years of financial stability and growth.

The advantages of having an account in Switzerland include currency and investment diversification, asset protection, and the possibility to deposit assets in some of the oldest and best capitalized banks in the world.