Cryptocurrencies: How to Conduct an Effective Research Before Investing

Over the past year, Bitcoin, the world’s biggest cryptocurrency has seen the value of its token, BTC, grow by approximately 2250%. What this means is: if you invested in BTC a year ago, by now, you would have made over 22.5X your original investment. This is not only impressive; as an investment opportunity, it is unprecedented. If you think Bitcoin’s growth is an anomaly, think again; Ethereum, the second biggest cryptocurrency saw its token, ETH, grow by over 10,000% over the past 12 months; a growth that eclipses even Bitcoin’s. Following the same trend, many other cryptocurrencies are gaining value at an exponential rate, and their potential as an investment vehicle can no longer be denied.

In comparison, one of the most lucrative stock options in the world, Warren Buffett’s Berkshire Hathaway returns a yearly average of just over 20%. Yes, the cryptocurrency market is not as reliable as the stock market, but that notwithstanding, lots of people have become m(b)illionaires by investing in the cryptocurrency market. How did they do it? It’s simpler than you think.

The important thing vis-à-vis investing in cryptocurrency is knowing which tokens to invest in, and which to avoid. To do this, one must conduct exhaustive research and ensure than the cryptocurrency you eventually decide on ticks some important boxes. As we go on, we will discuss these boxes and why they are important.

The importance of doing good research

As of November 2017, there are over 1300 established cryptocurrencies in the world, with hundreds more being launched or preparing to launch. It is impracticable to invest in all of them and surely, not all of them will succeed. To pick the right crypto, the investors have to do their own due diligence.

Consider this: in 2013, Forbes released an article about the top 30 cryptocurrencies in the world by market cap. By 2017, only 2 (Bitcoin and Litecoin) of the 30 retained their value and relevance, with the 28 others falling along the way.

The question now is: why did Bitcoin and Litecoin succeed in the same sector that the others couldn’t?

To answer this question, we have prepared a checklist for researching cryptocurrencies and their present/future potential; these 9 parameters contain everything a prospective investor needs to know before putting money into a cryptocurrency. Regard them as boxes, and the goal is to find a crypto that ticks all these boxes—or as many of the boxes as possible.

The Parameters, and Their Importance

How a cryptocurrency platform, and its token, performs (or will perform) is a function of the following:

1. The Problem

Every crypto-based platform was created to solve a problem. The most successful ones are the ones that tackle pressing problems and issues that affect a large number of people. If a company has a platform that proposes to solve a problem that doesn’t really need solving, it is likely the company won’t get very far.

In 2014, a crypto-based company proposed to launch “nano-satellites” into orbit in order to create a new Blockchain…the venture failed in 2015.

2. The Solution

Does the company have a platform that is equipped to solve the problem they’re tackling? Is their solution unique? Is it better than other solutions in the market?

These are important points to address, and serious-minded companies/platforms propose easy-to-implement and effective solutions.

3. The Team

Who are they? Have they done something similar in the past? How much success did they accomplish at that previous venture? How many team members have held important roles at successful/notable companies?

It is very important that the members of the team are well-experienced and qualified to do their jobs; lead the company in the right direction.

4. The Market

Every cryptocurrency company/platform is attempting to break into the crypto market in general, along with a smaller target market. How large is their target market? Is there ample room for the company to grow significantly? Is there a part of their solution that carves out a significant part of the market for them? These are important questions to be answered in this section.

5. The Competition

If a company is attempting to solve an important problem, it is highly likely that the market segment is highly-competitive. To succeed, they need a unique value proposition, a solution that sets them apart and pulls customers to them. If a company lacks a convincing proposition, they will never get ahead of their competition, and investing in them is not a smart idea.

6. The Business

A sound business plan, armed with a feasible strategy to raise the capital needed is the perfect combination. These days, though, most cryptocurrency companies launch their products with an ICO, so that solves the question of how they plan to raise capital. However, there are other important questions to answer e.g. Is their business plan sound enough to pull investors? do they have personnel experienced in ICOs? how do they plan to spend the money? How long will the implementation process take?

7. The Return

If the cryptocurrency you intend to invest in already has investors, find out how well their investors are being treated: have they seen a return on their investment? Are they consistently profitable? What steps are the company taking to ensure that they do? Are there attractive perks for new investors?

8. Transparency

Has anyone seen their product? Is there a live demo? What are the feedbacks? Is there an online community? Do they have a GitHub where investors with the technical know-how can check their smart contract? Companies shrouded in secrecy are scams waiting to happen, avoid them!

9. Likelihood of Critical Mass

Is their product viable enough to keep pulling users to the platform? Are they likely to get enough users to ensure self-sustained growth?

A platform’s value increases by how many users they have. Therefore, it is important to invest in a company that has the potential to pull enough subscribers to assure continued growth and development.

If a cryptocurrency company/platform is put through this checklist and it comes out favourably, then the chances of the venture succeeding is high. If there are too many “no’s” or “maybe’s”, however, that may be your cue to take a step back.

Try this: put any of the successful crypto platforms through these parameters, and see how well they do. Now, do the same for the ones that failed; this is enough to tell you everything you need to know.

Read our research on Bitcoin, Ethereum and Ripple using this checklist.

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Disclaimer: The information contained herein is not intended to be a source of advice and the information and/or documents contained in this website do not constitute investment advice.

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