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Cryptocurrency Investment: Ask Yourself These Questions

How do you decide whether a cryptocurrency or token is worth purchasing or investing into? Where do you start? What’s important and what’s not? This short post details the initial questions which I ask myself about a cryptocurrency before independently deciding whether to conduct more in-depth research. This isn’t extensive or complicated but has served as a valuable starting point for me.

Remember: I’m not a financial advisor. Read my full disclaimer here.

Considerations

  • My default investment decision is always to decline or pass.
  • I write everything down, as it helps me process information.
  • This isn’t perfect, but anything is better than nothing.
  • You’ll find some links to some valuable YouTube videos at the end of the post.
  • This site contains some resources which you might want to utilise.

Questions to Ask

First Impressions

  • What’s your initial impression?
    • Why?

Utility

  • What utility does this have?
  • What’s the purpose of this?
  • Does it serve a real problem?
  • Would the product/service function without the coin/token?
    • If so, what’s the point?
  • Are people already using the coin/token?
    • Who are these people?

Market

  • What is the USP?
  • What market do (or will they) operate in?
    • Are they working with or against others?
    • Is this market worthwhile?
  •  Who are their competitors…
    • Outside crypto-land?
    • Inside crypto-land?

Roadmap

  • Is there a clear roadmap?
    • Are deadlines being met?
  •  Are the development team active?

Team

  • Who are the team?
  • How many people are on the team?
    • Is this realistic (given ambitions)?
  • Do they have the competencies required to complete the project?
  • Are any members of team well-known?
  • Are they dependable and trustworthy?
    • Is there anything to suggest otherwise?
  •  Do the team provide regular updates?

Chatter

  • Does it have a strong community?
  • What is the general consensus on BitcoinTalk, Reddit, Twitter, etc.,?
    • Why?
  •  Can I find any information from other sources?
    • Summarise the chatter.

Conclusion

  • Explain the principle of this to someone else.
  • Briefly summarise your impression of this.
  • Make an initial judgement on investment.
    • What would have to change in order to reverse that decision?

YouTube Links

The Future of Initial Coin Offerings

In this video, Chris Dunn covers:

  • Key questions to ask yourself before investing into an ICO.
  • Red flags which help you identify (possible) ICO scams.
  • Advice on how to investment strategy.
  • The future of ICOs and his predictions.

Long-term Investment Advice

After 31:30, Carter Thomas (i.e., Coin Mastery) summarises some solid long-term investment advice from the Tim Ferriss Podcast (#270):

  • Don’t treat investments like lottery tickets (i.e., don’t spray and pray).
  • Select your long-term investments carefully and concentrate your funds in the currencies or tokens you truly believe in.

Trading Tip #14: The Dangers of Overtrading

In this, DataDash notes that:

  • 95% or more of day traders lose money (compared to holding).
  • Overtrading hurts your profits as the fees charged by exchanges add up to more significant amounts as you trade more.
  • Stay ahead of the market:
    • Do your research and perform some basic technical analysis.
    • Plan your purchases and sales in advance.
  • You are the judge of your own trades – hold yourself to a higher standard.

More (relevant) valuable advice in Trading Tip #11 and Trading Tip #12.

How to be Prepared for Cryptocurrency Bubble Burst

Although not 100% relevant, this video by CryptoPortfolio summarises how you could prepare your portfolio to survive market crashes. Essentially:

  1. Hard to predict when a crash will occur. Should prepare in advance.
  2. Invest into cryptocurrencies and tokens which have solid fundamentals.
  3. Don’t throw too much money at ICOs.

Anything to Add?

Did I make a mistake somewhere? Have something to add? Let me know in the comments below or tweet me.

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