By making many mistakes, I gained crypto-investor culture, not realizing certain details made me constantly doubt about which cryptocurrencies to invest in. Until I started working on the small details, thinking differently about valuing technology and analysing these new startups under different models and fundamental schemes, which have little or nothing to do with conventional startups, I began to make a difference in my results and in my confidence. Being autonomous enough, not to depend on anyone when it came to knowing how to invest, manage and be productive 24 hours a day, 365 days a year was an obsession and a goal, therefore giving up trying or looking for shortcuts was not on my Road Map.
As a minimum, a token must serve to secure the protocol, generate incentives among all network participants, generate value between user and protocol, and at least protect its users to some degree. Otherwise we are talking about cool but fleeting and empty cards, from here you have to devote your time to understanding the heart of cryptography, the purpose it seeks and where it wants us to evolve. Then and only then you are close to start making good decisions.
We may mistakenly think that scalability is the most important thing, but parts such as governance, security, code or monetary incentives are also part of the whole. There are also key issues that we must know how to interpret in order to calculate future prices. Once the cryptocurrency is mined, what monetary incentives it has to continue operating and how this event affects the security of the network, since a large part of the security budget comes from mining. Let’s not forget that the network effect is diluted if security is compromised, scalability is not enough and if over time no value is generated, all this leads to see how the token tends to 0.
On the other hand, we must understand the part of revenue generation and how it is distributed. Invoicing is a key point for the survival of many protocols and infrastructures, since when the market falls sharply and the price of the token is devalued (so the value of the project is also devalued), only a few continue to generate cash and incentivize both users and holders. Although it is not Value Investing, the Value exercise must be done, but it has to be an exercise adapted to these new business models, as well as to the timing they handle for their creation, consolidation and expansion.
Learning to value cryptocurrencies is a huge challenge, since it is learning to value, on the one hand something intangible and on the other hand learning to differentiate economy (a social science) from crypto economy (a technological and social science). That is why analyzing and knowing which cryptocurrency to buy is not only about money, it has multidisciplinary connotations. Once you are aware of all this content, you realize and it becomes clear to you that you should not set high or low values in crypto. The virtue of a good investor in crypto field is to be realistic.
To finish this article, I want to share with you the key points, that should always be checked, to be able to value and measure the opportunity you have in front of you. They will help you to understand where cryptocurrency or token gets its value. I call this set of questions “The Rules of the Game”.
A tedious and hard work, but necessary since they are the first steps where a cryptographic project captures value.
Verify that at least the core team are proven professionals both in blockchain and in the market niche that they want to address.
You must understand what sector it intends to serve within the blockchain, whether or not it has competition and whether it is under or overvalued with respect to it.
In this section it is very important to validate if the software has a public repository, if it has been audited by an external company and if it has a reward program for code review.
It is important to detect how they interact with their community, the rhythm of publications they make and their quality.
Observe on which exchanges the token trades, distribution of daily volume of exchanges and how many pairs it trades with.
Knowing who is behind it from the very beginning is undoubtedly the root and origin of its future success or failure.
This is the only way we have to measure and define something as important as the integrity with which the most delicate part of the project has been designed, the economic one.
The key figures of this study are the users, the holders and the number of daily transactions, their behaviour is critical.
The reasonable path helps us to understand the future price of the token by organic growth and not by speculation, determining and acting only on the capitalization of the project.
Several graphs need to be viewed and analysed to have a good dashboard, the mission of these graphs is to help us to make the best decision.
“Investors appreciate above the price of the token, the ability of the project to generate revenue and incentives, this gives them a clear and objective view of cash flows on future earnings.”