Navigating the world of cryptos can be daunting, and at times very confusing. This is due to the vast usage of software development language and technical computing concepts that are very involved in nature. Add to that the 100's of new projects that pop up each year, various bad actors in the space that spread false information, and things become that much more difficult to separate scams, from legitimate projects. If you are able to properly analyze these projects and know what to look for, you will be able to avoid many of the pitfalls and simple mistakes made by individuals who are new to the space.
Coming from experience of owning and operating a software based business, I am grateful to be exposed to see the many underlying aspects that go into fully developing, implementing and troubleshooting software development, so that it can be introduced to those that can use it. Coupling that with my experience investing in traditional markets (Forex, Stocks & Real Estate), I attempt to lay out indicators I use as a basis for my positions and outline how I perform my research.
I was able to devise a system for myself to determine how to analyze a blockchain project and its associated 'token' or coin I hope that this system may prove useful for you.
To Get Started:
I'd like to post a disclaimer to those reading - Many of the projects you see today will inevitably crash and burn. We will undergo various market cycles that will weed out the good and the bad, and try to shake individuals from positions that they take. Just as in the .com era, where many projects that were promising in nature, but failed to survive, the same is going to occur with many of the blockchain projects that currently exist today. If you are in, buckle-up because it's going to be a hell of a ride.
The People that Make the Product:
There are many underlying factors that determine the long term growth and success of a project, and these same factors were indicative of the companies that were able to survive the .com era. Behind each and every projects are individuals, just as there are individuals behind every real world corporation. While some projects are built by 'Decentralized Actors' - contributors & anonymous developers, like those behind Monero, or 'Centralized Actors' - having a foundation behind the development and expansion of the project Ex: the Litecoin Foundation that is behind the development of Litecoin. Those developers and decision makers that are behind these projects are ultimately going to determine the rate at which the project develops, how fast it will growth, and the likelihood that it will succeed. Concept, Funding and market cap are not the end all be all, and will not determine the future of these projects. I implore you to not be swayed by the fictional numbers that you see today. Some of the developers behind these projects have had millions of dollars dropped in their lap without dealing with the challenges and setbacks that can, and WILL occur owning, and operating a business, or in this case a network. Scaling, regulation, and competition are all things that these projects will face. Those that will be around years from now are the ones that have real world use case, as well as a strong foundation in place, comprised of persistent, resourceful and well-connected individuals.
Important Things to Consider:
Owning a cryptocurrency is not the same as owning a stock in a corporation. You are investing in a representation of value or assets within a specific decentralized network. Its viability is not based on generating a revenue, but rather directly depends on the strength of the network (users, miners and developers).
This space is still in its infancy stages, and almost all of the cryptocurrencies you see listed, are in their 'proof of concept' stage with only a "Whitepaper" to show for the millions invested. These "Whitepapers" are simply a detailed outline for a projects goals and objectives and is similar to a traditional business plan. The whitepaper will drastically change over time from what you read now to what it becomes as the project is developed, new ideas are introduced, and the user base grows. Currently, there is a lack of track record not only the projects themselves, but also for some of the individuals behind these projects. Your decision should never be made solely made upon how good the concept is or how the whitepaper sounds when reading it to yourself.
Fundamental Breakdown:
"Believe nothing you hear, and only one half that you see.” Information is power and the more information you have access to helps you assess a coin and its potential. In order to separate the good information from the bad you have to first know where to get your sources of information from.
Qualitative Information -
• Use Case - Does the project have real world use case? What is the Projects token use case?
• Target Market - What is the size of the addressable market for the projects use case?
• Technology - What is the project built on? Does it have its own blockchain? What languages are used to write the code?
• Innovation - What new ideas are they bringing to the crypto space? what makes the project innovative?
• Team (See below)
- Variety of individuals and their professional backgrounds - Marketing, PR, Executives.
- Developers - References, History, Github.
- Developer Compensation Model - How are they compensated? (Tokens, Salary) this can often can help determine relative commitment of the developers to the project
- Advisors - Professional Background, Experience within the Industry & Industry Connections.
• Roadmap - Steps deadlines, history of meeting previous deadlines, what is the likelihood that they can meet certain goals?
• Whitepaper - If it is very technical do research to educate yourself on the basic concepts.
• Community - Members in the telegram group, slack, discord, followers on twitter should all give you an indication of how active the community is and how invested they are in the project.
• Partnerships - Do they have legitimate partnerships with specific industry leaders? What is the quality of their partnerships?
• Competition - Which projects are targeting the same addressable market? How similar is their competitors product? What is their differentiating factor from their competitors?
• Planned events - Coinmarketcalander is useful to find planned upcoming events.
• Concerns & How They Address Them - Do they neglect recurring issues? Do they address concerns & recommendations from the community? Do they address issues in a professional manner?
• Consensus Method - This is how the network votes, examples of existing consensus methods are - Proof of Work, Proof of Stake (Masternodes), Proof of Space.
Quantitative Information -
• Market Cap - Helps to determines exposure of a project.
• Circulating Supply - Low circulating supply but a large total supply can negatively affect price.
• Total Supply - A lower total supply means the token is more scarce, which can help cause larger growth in price. However individuals often like to acquire larger quantities of something at a lower price, and are willing to buy that which they can have "More" of.
• Inflation over time - Block rewards help determine the growth of the circulating supply of a token.
• Distribution/Rich List - Use etherscan or similar services to find token distribution. Does one central party hold most of the supply? In this case it is easy to manipulate prices.
• ICO Details - What was the pre sale price, how many tokens were distributed? How many were offered to the public? What was the price for the public offering? Where is the current price in relation to ICO price?
• Price - ATH (All Time High & All Time Low) in both BTC and USD, How many cycles has the coin undergone, What was the cause of major price movement, if any.
• Value Analysis versus competitors - Is this project undervalued compared to the competition, if so, why is it undervalued?
• Markets & Exchanges - This determines the liquidity, more exchanges = more volume.
• Block Specifications - Determines difficulty to mine, affects the total supply. Ex: Block halving makes it more difficult to mine a specific coin.
I hope this outline proves useful to those who read through it.
For those that are already in, or are looking to get into cryptocurrency please be aware that all investments, including cryptocurrency, is speculative in nature and involves substantial risk of loss. This market is still the wild west and I encourage you to get personal advice from a professional investment advisor and to make independent investigations before acting on any information that is published. I do not in any way warrant or guarantee the success of any action you take in reliance on any statements or recommendations that were made above. Past performance is not necessarily indicative of future results. All investments carry risk and all investment decisions of an individual remain the responsibility of that individual. There is no guarantee that systems, indicators, or signals will result in profits or that they will not result in losses.
Best,
CryptoNoShow