Evaluating Cryptocurreny

Determining the value of a cryptocurrency is quite a tricky thing to do. There are no set parameters by which any investment holds true. A prospective investor must determine the value of a cryptocurrency through an objective process of in-depth research and analysis.

Researching the company which is developing your currency is the first step. This should include an overall analysis of the project, a proper evaluation of risk-reward, and the overall competency of the founding team - i.e. their ability to build a strong work product.

Analyzing a Project

When analyzing a project, the first step is to look at whether or not there are any similar projects out there. If there are similar projects, do some digging and find out why they either failed or what has caused them to do well. Compare the results of your findings to the currency you wish to invest in and ask yourself a few questions: "What makes my currency different?" or "This currency failed while attempting to do the same thing as mine, what exactly is my currency doing differently? What is my currency doing better and why did people not like the original?"

These are all key questions in determining the potential of a new currency. Often a cryptocurrency fails due to a lack of effective marketing, poor timing or simply not launching a strong enough work product to fulfill the expectations of that particular market segment. If there is active competition, you must be able to justify that your currency is superior or can at least contend. If you feel as though the reasons your currency is better are justified, it may be worth looking into. The reasons could vary anywhere from having key partnerships to an all-around better development strategy.

At this point, you would like to begin digging around the web; blogs, social media, etc. Value creation is determined largely by the very people that post and discuss about these currencies online and on forums, so understanding the consensus is quite important. Anonymous people on the internet are typically not great sources for information, however in the case of cryptocurrency, community support is actually a valid and important indicator. What they have to say actually does matter, quite a lot.

Value Creation

The market sentiment can be ascertained through your research, use it to understand how other people generally feel about the project. How strong is the community response to the project? There will be many positive responses and some negative ones as well. The trick to getting ahead is to objectively weigh the negatives. Using your knowledge of cryptocurrency value creation, how likely are these negative feelings to materialize and affect the outcome? 

Before conducting this research it is worth noting the importance of remaining objective. You can not get emotional. You do need to know how people feel but do not let their feelings shape your opinions. Develop a comprehensive pros and cons list for the cryptocurrency you are researching, you can use the list to compare notes and either reaffirm your beliefs or doubts while looking at the general market sentiment. If new information comes to light that you hadn't previously considered, conduct more research and determine whether or not the information gathered affects your initial impression of the project.

Many arguments are pointless, comparing a cryptocurrency to a real company with stock for sale on the NYSE is a fallacious comparison. Value in the decentralized market place is driven primarily by speculation regarding potential use case scenarios. Cryptocurrencies do not derive value the same way stocks do in traditional equity-based markets, there is no cash flow, no profits or loss, it is all about how people perceive its worth and the significance of the role it plays in the market. People invested in Facebook even though the company had hardly generated any revenue, this was because there was a very large groups of people who believed that it would generate a lot in the future. Cryptocurrency is no different, the value is also highly speculative and "pre-revenue," the big difference is that in cryptocurrency there is no revenue nor will it ever generate any, it will only usher more use cases and gain broader support and market adoption.

What Makes a Successful Investment

In order to make successful investments, you have to consider that revenue doesn't matter in regard to cryptocurrency value, it's all about potential use cases. The key to making the best investment decisions is to see the potential use cases before anyone else. That may seem like an under-simplification, but following our model makes it much easier. For example, look for the platforms in early phases such as alpha testing or pre-beta. If the projects have hundreds pages of discussion on community forums, or perhaps dozens of key partnerships, while still in testing phases - it is probably worth looking into more. Those kind of investments do exist and they go almost entirely under the radar until officially launched. The news of the newly released platform reaches a broader audience and their great platform or important partnerships get noticed. Once the rest catch up and the news diffuses properly, speculation goes wild and the price rises drastically, all you have to do is get there first.