How to evaluate a cryptocurrency?

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In this guide I would like to take you through some of the steps that I use when it comes to evaluating a new cryptocurrency and whether it is worth investing in it or not. There are several concepts and questions that you need address before making such a decision.

Do your own research on that particular project

Just like with any other investment that you make, you have to do your own research before deciding to put your money into something. In the same way you wouldn’t invest money in some random business on the internet, you don’t want to invest your money in some random coin off Coinmarketcap. Conducting your own research and studying the project that you want to invest in is essential in making sure that you don’t get burnt.

Let’s say you see on an online community that a particular coin is hyped at the moment and you feel like investing in it. I highly recommend researching that particular coin even if it is very hyped at that moment and it looks like everyone is buying no matter what. You could use this set of questions in the process:

  • What is the problem that they are trying to solve?
  • Is there a legitimate, valid problem or is it something that is unlikely to make such a huge difference?
  • Has anyone else tried to solve that problem before? If yes, what is the project and how is the project doing at the moment? Try and compare the 2 projects if that is the case and evaluate what are the positives and the negatives of each.

Read the white paper

One of the most important steps when it comes to researching a coin is┬áreading the white paper. This will give you a detailed description of what the project is trying to achieve and how exactly it’s doing that.

Evaluate the team and its members

Another important thing is to look at who is part of the team, to find out what their expertise is and what their previous experience consists in.

  • Look these people up on Google, LinkedIn, Twitter etc.
  • What have they been doing before they got involved in this project?
  • Are they currently working on something else or are they fully dedicated to this project?
  • What is their expertise in the field i.e. if the project concerns renewable energy, do these people have any experience in the field of renewable energy?

Additionally, look at the list of advisors – some of these projects have high-profile advisors from the crypto world such as Vitalik Buterin, co-founder of Ethereum.

Is there a proof of concept yet or a alpha / beta version of the product?

In some cases there will be, in some cases there won’t be one. However, whenever a project can provide proof of their idea actually working, that is a very positive thing.

Roadmap

The roadmap gives you an indication of what the plan of the project is for the near future i.e. when they will release the platform, when users will be able to use their product and so on. All the roadmaps should be clear and should give you a rough idea of when the project is expected to be fully operational.

Another important thing when it comes to roadmaps is whether the project is sticking to the plan – are they respecting their roadmap, are they delivering what they said they would deliver at the promised time?

ICO

If the ICO stage of the project already took place, you can look at how it went down. Was it sold out? If not, how much of the offering has been sold and how long did it take? This is not necessarily a very accurate measurement because there are loads of ICOs which stay under the radar and are actually high quality projects and on the other hand there are many ICOs which are very hyped and then they fail to live up to expectations.

Total supply, circulating supply and any token burns

These are 3 important criteria.

  • Total supply is the total number of coins available. This includes coins which have been sold to investors pre-ICO and coins which are owned by the team itself
  • Circulating supply is the number of coins that are available in circulation. These are the coins that can be exchanged on the exchange platforms and the coins that you would be able to buy or sell if you did not get involved at ICO stage.
  • You want the ratio of circulating supply to total supply to be as high as possible – otherwise it could mean that many big investors (“whales”) and the team itself hold a huge percentage of the total amount of coins
  • You want to have a low circulating supply – this would allow the price per coin to increase in value much more easily than if you had a large circulating supply. It is much easier for a coin that is worth $0.10 with a circulating supply of 200 million coins to grow 10x in value than for a coin that is worth $0.10 with a circulating supply of 20 billion coins

Token burns is another important concept that you need to take into account. Some of these projects decide to burn excess token. This is a very easy way of increasing the value per coin. The explanation for this is: let’s say you have a market cap for a coin of $200 million dollars, with a circulating supply of 20 million tokens, therefore each token is worth $10. If the project decides to burn excess tokens, let’s say 8 million tokens, that will leave you with a market cap of $200 million dollars but only covering 12 million tokens, which gives you a price per token of $16.66. That’s a 66.66% increase in the value of a coin just by burning the excess coins.

The community around the project

This is a very important thing – is there a strong community around the project? Join the Telegram, Discord or Slack channel of these projects and look at

  • how many people are on these channels?
  • is the team active?
  • are they responding to questions and how often do they keep their investors updated on what’s happening with the project?

Other people’s opinion

Join Facebook groups, follow influential people in the crypto world on Twitter, ask Doctor Crypto – do whatever you can to gauge what the feeling is in the community about this particular project. Are people excited? What are some of the flaws that people see in this project and if people decide not to invest, what is their reason?

These are just some criteria that you can use when it comes to investing in a new cryptocurrency which would minimise the risk that you invest money in something that is not worth it.

 

Throw Coins!

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