Factors You Should Consider Before Investing Crypto Currencies

There are thousands of projects that claim to be in the cryptocurrency industry. Projects like OneCoin have cost investors up to $4 billions. However, Bitcoin has generated more than $trillion in value (21M coins to be put in circulation at a price of $48,000 per coin as of 03/2021).

We will evaluate latest projects and compare them with previous scams and successes to estimate what can come out of them.

What are the important factors in a venture?

Crypto projects are like ventures and we will leverage the mature system of evaluating ventures and build upon it with crypto specific factors.

Cryptos are ecosystems with multiple stakeholders including investors, miners, users, vendors, exchanges and regulators. This is similar to ambitious new businesses that need to work with investors, users (multiple groups of users in case of ventures in multi sided markets), suppliers and regulators.

Venture Capital firms, VCs, evaluate businesses. VC is a mature industry that started in the 1970s and has been able to deploy $135bn in 2020 in the US. VCs typically look at these factors in a business:

• Importance of the problem to be solved
• Effectiveness of the solution
• Market size
• Competition / substitutes
• Traction
• Team

To simplify the list, we will focus on these points:

• Value generation potential: We will take into account whether this is an important problem, whether the proposed solution is effective, addresses a large market and take into account the competition. In short, we will evaluate if the proposed project is likely to generate significant value
• Team: The people involved are important in any undertaking. No one would take medical advice from someone hiding behind a desk. However, there are exceptions when the team creates exceptional transparency on everything else and builds a model that requires zero trust. Then, users can trust the system.
• Traction matters. A project that lacks in every dimension but achieves traction is worth a good look to understand what stakeholders see in the system. It is unlikely that a project will achieve significant traction while having poor performance in every other dimension.

What are important factors specifically for a crypto currency?

• Blockchain: While it is trivial to launch a blockchain, some scams like oneCoin did not launch one. Therefore, we will check if we can confirm the existence of the blockchain
• Tradability: Is the crypto currency tradable? This is important because unless the crypto starts trading, no one can know its market value. Since this is an investment decision, it is important to know the value of a crypto coin
• Store of value: Is the crypto currency a store of value? For those that have not yet hit the exchanges yet, it would be good to understand if the currency can be valuable.

How can we measure success factors of a crypto project?

Given the amount of disinformation in the market, we will examine independently observable data points. We will also review what the team is sharing but this will have less weight in our ranking.

• Store of value: This will require a qualitative assessment and will be the combination of all other factors
• Value generation potential: This needs to be a qualitative review that we will carry out.
• Team: Relevant experience and previous achievements are important. We will highlight anonymous teams. We will especially highlight “claimed but not verified” teams. These are teams with profile pictures and bios but there is no proof of their existence, they could be fake profiles written up by others using fake images.
• Traction: Website visitors is an independently verifiable metric and will form the basis of our initial assessment of traction. We will use SimilarWeb’s estimate of the monthly traffic on the company’s domain.
• Blockchain: We will verify the existence of a blockchain.
• Tradability: We will check if a cryptocurrency exists in exchanges

Rating of selected cryptocurrencies

And if you are ready to invest in these or better cryptocurrencies, we reviewed major cryptoexchanges and prepared a comprehensive list of cryptocurrency exchanges.