One of the biggest mistakes you can make in your crypto investment journey is –not doing your own (thorough) research and getting all caught up in the hype and brain bursting burbles.
To become a successful crypto investor you must have an eye for identifying and picking the best and most valuable projects that will still be here 5 to 10 or more years from now.
But nobody knows what will be in that length of time, how do you know such projects? You may not be a future teller, but there are factors to consider when looking to invest in cryptocurrencies.
In this article, we will be looking at 5 critical factors to consider when investing in any crypto project to ensure that you don’t fall for scams or end up investing in shitcoins.
What to look for when investing in any crypto project
- Your understanding of the cryptocurrency market and underlying technology.
- The Project Team.
- The Problem the project is out to solve.
- The quality of the solution and technology the project brings to the market.
- The project community and relevant partnerships.
1. Your Education
“Never invest in any business you do not understand”. ~Warren Buffet.
The cryptocurrency and blockchain technologies are the new, shining and exciting technologies that everyone seems to be talking about.
You must have heard of people or even someone you know becomes millionaires with this “new thing”.
Everything seems to be happening very fast and in all of this excitement, hype, and lightheadedness you feel like hey, –I need to be part of the action.
Yeah, sure you do need to be part of this movement but that’s until you have grounded yourself on the basics of the technology and develop a personal understanding of the cryptocurrency market dynamics.
If you plan to make any form of investment (and you definitely should) in cryptocurrency, you need to “constantly” educate yourself.
Research and study the basic building blocks of the blockchain and cryptocurrency technology, the businesses and solutions being developed on these technologies, basic safety measures, news, and other external factors and how all these affects and shapes the future of this innovative and disrupting technology that’s growing like wildfire.
You need to have at least a general understanding of the system before you plug your head and money into it.
After all, it’s your money we are talking about; you wouldn’t want to lose it that easily.
According to billionaire investor -Warren Buffett; he missed a huge opportunity by not investing in Amazon and Google because he wasn’t informed in these businesses or the technology that powers them –the internet.
“I had plenty of ways to ask questions or anything of the sort and educate myself, but I blew it,” Buffett said of Google.
Because he was uneducated and unfamiliar with the technology and internet business, Buffet simply avoids it all together and missed out on a few big winners like Google and Amazon.
He was wise and smart not to expose himself to the (huge) risks associated with investing in something he doesn’t fully understand or appreciate.
However, he also lost big chances to invest in some of the best (future) businesses back then.
So learn to learn and be voracious in seeking and consuming information regarding the crypto industry.
Be familiar with all the industry terms and terminologies –No! I don’t mean go about cramming all the terms out there. I mean “be knowledgeable” on at least the basics of cryptocurrency and blockchain that you can contribute a thing or two about it in a casual conversation.
There are several places to get information –from following relevant twitter accounts to reading project blogs and independent reviews which are all available if you use Google correctly.
Most projects have dedicated telegram groups where you can ask any questions regarding the project and get reliable information accordingly.
There’s no shortage of information sources if you’re really ready to learn about this life-changing technology.
More so, be practical. They say “experience is the best teacher” and that’s absolutely true. You can decide to play around the market using a very small amount (that you can afford to lose happily) to get a feel of the markets and build your confidence.
No amount of research, reading, and thinking will replace the knowledge and experience gained through hands-on learning.
2. The Team
The project is only as good as the team. A great team can turn a mediocre idea into massive success and a poor team even with a brilliant idea will flop almost all the time.
Such is the power and importance of the quality of the team to the success of any project.
“If we are a good team and know what we want to do, one of us can defeat ten of them.” Jack Ma.
Before investing ay project you need to ask and find answers to the following questions among others:
- Who are the project founder(s), especially the CEO and top management members?
- Who are those behind or backing the project –developers, advisors, and private investors (if any)?
- What are their background, reputation, and experience?
- How relevant are their experiences and background to the project they are handling?
- Are the team members known and “visible” or anonymous?
Now the worst project to invest in is one whose founders are either not disclosed or visible. If you can’t identify who the founders are or those behind the project, then it is best you stay away as they have left themselves a backdoor for potential exit-scam.
Moreover, why should you trust a team with your money that can’t trust you with their identity?
Is there a genuine reason for the identity of the team to be hidden? For example, the identity of Satoshi Nakamoto –the creator of Bitcoin and the founder of cryptocurrency has remained a mystery for the past decade now.
However, Satoshi is not even currently directly involved in running the bitcoin network. He was just a figure that needs to protect his identity from the authorities who may be interested in bringing him under for his invention.
Aside from situations like this, founders have no good enough reasons to hide behind websites and a pale whitepaper.
Keep your money away from anonymous founders and mystery CEOs.
3. The Problem
No project or business has any right to be in the market if it doesn’t solve any important problem of humanity.
But in cryptocurrency, most times that’s not the case. Many projects are launched every month just to “be the next Bitcoin”, the next “Binance” or the next biggest thing already in the space and many gullible, uninformed “investors” are falling for these scams and losing their hard-earned money.
A random token or just another coin with a blockchain doesn’t necessarily have to hold value or be the next bitcoin. Except you’re in this space to purely speculate on new cryptocurrency releases, in which case I would advise you rather go gambling.
Don’t try to buy or invest in the next big thing or the next bitcoin or the “next big anything” for that matter. Invest in projects that solve real-life problems. Ask yourself:
- What problem is this project solving?
- Is this a “major recurring problem” to make the business sustainable and profitable for the long-term?
- Are there enough people experiencing this problem to make it market big enough?
- Does the problem even require a blockchain solution? Not every problem demands the creation of a new cryptocurrency.
If your answer is NO to any of these questions or worse still you don’t have an answer then you should just walk away and move on to some other project on your list of consideration.
4. The Solution
Once you’ve identified and determined that the project is aiming to solve a genuine “genuine” global or local social-economic, social, or technological problem – the next step is to ask:
- How valuable and relevant is their solution or technology to the identified problem?
- What other project or Company is offering similar solutions?
- Is this one better or superior to existing solutions?
- What competitive advantage do they have to be profitable and sustainable?
- Would their solution or technology still be relevant in the next one (1) or more years?
- What is their roadmap? Do they even have one?
Ethereum (ETH) is a decentralized software platform that enables Smart Contracts and Decentralized Applications (DApps) to be built and run without any downtime, fraud, control, or interference from a third party.
Basic Attention Token (BAT) aims to:
- Help users earn advertising revenue share for their attention
- Help advertisers gain maximum ROI for their budget by reaching the right audience
- Helps content creators to make money off their works
The project creates an entirely new digital economy in which everyone is a winner.
Hydro enables new and existing private systems to seamlessly integrate and leverage the blockchain technology to enhance applications and documents security, identity management and payment transactions, etc.
You need to be able to point out the value the project brings to the table and what that solution is worth by evaluating other business factors such as demand, competition, and use-cases.
For example, do we need a “corona coin” to tackle the covid-19 pandemic? How does the coin even contribute to solving the problems caused by the virus and cure those infected and sick from it?
Of course, you know the answers. Your money is better spent on toilet papers and hand sanitizers than such coins.
5. The Community
The community backing the project is an important part of any project’s development.
Does the project have a functional and loyal community? This can tell of the value as a large and loyal community is a sign that the project is valuable and will serve as a driving force to mass adoption and ultimately the project’s success.
However, you must know that some scam projects have large and hyper-active communities who are only attracted and encouraged by high commissions and get-rich-quick opportunities. For example, the now-dead bitconnect which during its glory days was once among the top 10 largest cryptocurrencies by market capitalization.
This sort of community usually never stands the test of time. Soon enough the project leaves them high and dry and they, of course, move onto another quick money scheme.
You will easily know these groups when you see them as most times all they talk about is huge earnings, payouts and other financially induced energy on display.
That doesn’t mean talking about price and other monetary issues regarding a project is not standard or welcome; rather a good community is most interested in the development works and progress being made in achieving the road map of the project and reaching new and higher milestones.
These developments should be what drive the value and ultimately the (price of the project or Company and not some marketing hype backed by a lousy community which dies as quickly as it rises.
Some projects are very good at fanning their hypes through pump and dump schemes. You are not the gullible investor that will fall for those.
Also to be considered is the partnerships, and other collaborative and synergistic relationships the project or Company has developed which contribute to its growth, market reach and increased use-case.
If other businesses, especially traditional large Companies are willing to partner with them and leverage on their technology that means the product is valuable and the partnerships will only increase the user-base of the project thus drive its value further up.
These valuable relationships are a good predictor of the potential future success of the project.
Also important is the total market capitalization and daily trading volume. A higher market cap means a lot of people are betting their money on this project and a high volume indicates sustained interest and activity in the project.
However, they’re great projects with very little market capitalization values. Some are highly undervalued and are potential great investments.
Invest in the technology. Research, study, understand and follow the market –money goes wherever “value” is.
Invest in projects that:
- Solve real-life problems
- Offers sustainable value
- Are run by a solid, visible and transparent team, and
- Backed by a strong and loyal community of investors and partners
What other factors do you use to evaluate crypto projects to invest in? Share with us in the comments section.