How do you decide whether a cryptocurrency or token is worth purchasing or investing in?
Where do you start? What’s important and what’s not?
This 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 is something that I’ve used as a starting point to evaluate projects.
Remember: I’m not a financial advisor. Read my full disclaimer here.
Considerations
- My default investment decision is always to decline or pass. 9 out of every 10 startups fail, and this is probably an optimistic estimate.
- I write everything down, as it helps me process information.
- This isn’t perfect, but anything is better than nothing. As you evaluate more projects, you’ll find that the list of questions you ask becomes more refined.
- You’ll find some links to some interesting/valuable YouTube videos at the end of the post.
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? Is this market worthwhile?
- Who are their competitors inside and outside of the crypto-space?
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 in 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:
- Hard to predict when a crash will occur. Should prepare in advance.
- Invest in cryptocurrencies and tokens which have solid fundamentals.
- Don’t throw too much money at ICOs.
Anything to Add?
Thanks for checking out this list of cryptocurrency investment questions.
Have something to add?
Let me know in the comments below!