In late 2017 the world was a buzz with fervent excitement about these new fangled futuristic entities cryptocurrency and blockchain, and then it stopped, and suddenly negativity flooded the market. Why? Had the technology suddenly changed, was it now worthless? The answer, a strong a resolute NO. So what happened? Those of us that have been here a while are able to look at cryptocurrency and blockchain on a macro level, as an emerging technology and its possible implications for the future. If you are new to the scene, welcome, do some research. The problem with the 2017 rush, was that these world changing technologies were seen as a get rich quick scheme and millions jumped aboard the titanic as it set sail with promise of greener pastures. Money was flung left right and center at any new flashy product which promised the buyer the world (see Bitconnect history for a prime example). Unfortunately for many, their investments plummeted as the market corrected and they were left with a bag of absolutely worthless coins with little to no functionality and no product to promote. Companies with something real and tangible to offer, will always win out over speculation in the long run.
So what do you do? DYOR – Do your own research – due diligence - Fundamentals play a huge part in the finance world in the investment of stocks in determining which companies will succeed and which ones will fail. Crypto is no different.
Read the ethos of cryptocurrency and blockchain and understand what implications this technology can have for the future, once this is cemented in your mind, you are ready to invest.
Here are some questions to weed out the gems from the durge.
1. What problem is it solving?
Is there a real need for it? Some coins are pointless. A prime example being Dogecoin. A coin created merely for a bit of fun utilising a famous meme at the time as its insignia, but found fame through the crypto community as sort of a running joke. Did it solve a problem? You could tip people with it for good articles and such, but really, no, no it did not. Ethereum on the other hand was revolutionary. Different to the purely transactional Bitcoin, its’ ability to act as a toolbox for the cryptocurrency space for the creation of Dapps, smart contracts and a whole host of other things opened up a million possibilities for other creators to come in.
2. What is their vision?
Every new start up to generate interest must first have a unique idea, something that can provide value. Coming in at a close second though is their vision. How do they see themselves achieving that value. An easy way to get a good idea about this is to read the Whitepaper. This will spell out all intended movements and provide clarity as to whether they are achievable or not. Similarly a good roadmap (a timeline of expected progression and release dates provided by the company) can help to ascertain the timescale in which these movements will be made.
3. What competitors does it have?
Flik (FliK) was a new coin brought into the market late 2017 with the great promise of being ‘the next Netflix’ and even had a few celebrities to promote it. The problem with having a competitor like Netflix is that you need to have a damn good working model, revenue system, networking, legal understanding etc and even THEN trying to face up against a multi-billion valued company is troublesome. Flik unfortunately, did none of these, and went bankrupt very quickly as the price of BTC plummeted. Find a coin which has seen a niche in the market.
4. Who are the team?
As with any great success, a great team must be prevalent. Search on the companies website for who they have employed to carry out their vision. Look for celebrated technologists, financiers, businessmen, marketing, developers, and their relevant experience in their fields and in the cryptosphere – all these are vital cogs in the machine and play a role in ensuring the success of the company. Similarly, look at the advisors they have reached out to. These should be current in the scene and recognisable in the financial world. Also check their partnerships. A lot of early ICO’s advertised their partnerships with like minded new companies in the space. Whilst this is good for stability later on, it should not be a selling point, and more considered as the blind leading the blind. Look for already established partners and front runners in their respective fields.
5. What are the Tokenomics?
A lot of altcoins out there are lacking in intrinsic value. That said that the value of the coin is solely determined on the financial success of the business. Intrinsic value acts a divergence away from the companies earnings and places value onto the coin by its functionality. For example, Ethereum’s intrinsic value comes from its’ use as ‘GAS’ (small transaction fee) for every ERC20 coin transacted on the Ethereum network.
Supply, and % retained by the company/sold to investors can also play a huge part. A project which is selling only 15% of its’ coins to the public means it is retaining 85% for its’ advisors, or team, or just as a backup, should they choose to sell on the market. This has massive implications for the investor as if any of these do choose to sell, such an influx of coins on the market will dramatically increase the supply making it less valuable. Similarly assess the sustainability of the companies token model. Will they reliably be able to conduct everything they are promising using the amount of tokens they are selling?
All in all, just make sure you don’t rush into anything. If you are looking to hold your investments for a long time, you want to ensure the company you are investing in is credible, valuable and has the potential to provide you with a decent return.
I hope these tips are helpful on your journey to your investment into cryptocurrency. It is something for the future.
As an endnote, never invest more than you can afford to lose, and have patience. The cryptoworld has a lot of room to grow!!