You’re always advised to invest in only the most valuable crypto projects that are more likely to survive and thrive in any market condition.
But what is a valuable project and how do they derive their value? Is it about the token price, total value locked (TVL), revenue, number of users, or popularity?
These and many more are the questions I will be answering in this article.
Keep reading…
What is a valuable project?
A valuable cryptocurrency is one which has a market value. That means, it has a price tag and can be easily bought or sold in the open market.
Really! That’s it?
Yes. Basically, all it takes for a cryptocurrency to become valuable is for someone or people to be willing to buy it at any price.
That’s why any picture of a rock or baby poo, sorry I mean NFT, can be sold in the market. Someone is willing to pay for it.
But that doesn’t tell the whole story. You also need to understand why people are buying it, and if such demand is sustainable.
Your answer to those questions will determine whether you should invest in it or pass.
What makes a project valuable?
There are various reasons people are investing in a particular cryptocurrency project. These include:
1. Solution or a working product
The primary reason people invest in a crypto project is that it’s providing a product or service that they need and use.
So, people buy the token of that project to use on the platform. That’s why use cases are an important consideration in choosing the best cryptocurrencies to buy, especially for the long term.
So ask yourself, what services or products does the project offer that makes people want to buy its token for use?
The more use cases a cryptocurrency has, the greater and more sustainable its value becomes as a lot more people would be wanting to buy it.
2. Hype and marketing
The greatest asset of some cryptocurrency projects is their superior marketing skills. Though some of them are now upgrading by developing some real use cases for their shitcoins.
They have the vibes and know exactly how to get the community pumped and hyped. There’s no dull moment in their community and almost their entire budget is spent on marketing.
Furthermore, people like to invest in what other people are obviously investing in (herds’ behaviour), no matter if it’s just the picture of a banana.
And these projects know how to take advantage of that by creating the right impressions. For example, they could create multiple:
- wallets buying and selling their token,
- social media accounts talking about and hyping their project, etc.
…all to create an illusion of mass interest.
Some invest in influencers to promote their projects to an even bigger audience and give them some credibility.
Their ability to keep the hype on is what gives them value and relevance in the market. And this can go on indefinitely or until it reaches unsustainable levels or the team rugs, whichever happens first.
3. Trends
The trend is your friend if you know how to ride it. And in crypto, a lot of value is gained or lost in new trends.
The projects that are able to catch and ride on to the latest trends will capture the most value.
For example, those who caught and joined the NFT trend early on made the most money from it.
The Bored Ape Yacht Club NFTs which were launched at a price of $200 each, now have a floor price of 91.49 ETH or $180,000+.
There were also other trends some of which are still trending but less profitable now than when they first caught on, such as:
- meme coins,
- DeFi,
- the metaverse,
- play to earn games (P2E),
- move to earn (M2E),
…we can go on and on, but you get the picture.
Projects that are able to create or catch on to the latest trends will gain the most value.
4. Speculation
The market thrives on speculation and volatility. The fun in this market is far greater than what your local casino or sports betting company can offer.
Someone was shilling Algorand (ALGO) to me recently and I asked him to tell me why the project is worth investing in.
His response was:
The simplest answer is the tech, the creator is a Turing award winner from MIT, which also hopefully gives him connections to a certain someone who is now head of the SEC, and while I myself am sceptical that they have indeed solved the trilemma the fact that Silvio is convinced he did is enough of a reason for me to throw some fiat at it.
Interesting, isn’t it?
Notice how everything he said is based on speculation, assumptions, and what you can safely call blind trust?
I have nothing against ALGO, I’m even considering adding it to my accumulation list.
But I used the above example to point out how many people invest in a project based on pure speculation and assumptions alone.
Conclusion
Many cryptocurrency projects get their value from actual use cases and these are the ones you should be looking to invest in, especially for the long term.
Others have value because they’re lucky or smart to catch or create a trend to ride on early enough. Or they have the budget and creativity to sustain an elaborate marketing campaign to attract new investors.
For me, I want something that’s sustainable. What about you?
What other ways do you think crypto projects derive their value? Share with us in the comments section below.
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