These factors will determine the success of your crypto investment

in #cryptocurrency5 years ago (edited)

The crypto market has been in quite a slump for the past few months. A lot of market participants have decided to sell all their assets, cut their losses and just move on. The crypto world was not what they thought it would be: a get rich overnight scheme.

Even though such a bear market can try one’s patience, you have to look at it from the bright side: it has left a lot of good assets, that could potentially be worth a lot in the future, undervalued. This would be a great time to take advantage of that since the blockchain industry is a fast growing emerging market. Before the end of 2017 you could’ve just put your money in pretty much any coin and it would’ve been a good investment. Billions of dollars were pumped into random alt coins without it having an actual (working) product (a lot of these were scams as well). The only thing these alt coins offered were white papers filled with empty promises. Because of this phenomenon, there were so many ICO’s being launched, you couldn’t even keep track of them.
Now you have to be a lot more cautious. Times like these shake out the weak hands and teach investors to be very selective when choosing an investment and as a result of that only a select few coins will partake in the next bull market, leaving unworthy coins (which there are a lot of) behind.

When doing your research on different coins, you will come across a lot of the same things: fancy tech terminology, outrageous claims and impressive marketing strategies. In situations like these it becomes very hard to find reliable, quality information, since you often don’t know what to believe. I can’t even count how many times i’ve seen crazy statements like: “this coin will be able to handle 1,000,000 transactions per second!”, without any actual facts supporting this claim. Because of this I’ve decided to write this post and discuss some important factors you should look for in your next cryptocurrency investment.

Intrinsic Value

We’ll start off with a definition from Investopedia: “Intrinsic value is the perceived or calculated value of a company, including tangible and intangible factors, using fundamental analysis. Also called the true value, the intrinsic value may or may not be the same as the current market value.”

While blockchain technology is still in its infancy, it is quite difficult to determine its true value at the moment since there are still a lot of groundbreaking developments on the way. You should pay attention to a cryptocurrency’s provided service and how many people are using it. Blockchain platforms for smart contracts can be determined based on the dApps.

However, a cryptocurrency’s value is not as black and white as it seems. For example, Bitcoin and Ethereum have what we call the first mover advantage, meaning they were here before all the competition. This is valuable on its own and because of this BTC and ETH are valued far higher that their competitors even though some of these competitors provide better services. There are plenty of platforms that are much faster and a lot cheaper but the first mover’s value has been given to it by the market and therefore determined a safe bet. But remember, this advantage can be lost in the long run if the cryptocurrency/blockchain doesn’t develop enough and keep up with the market.

Another important thing to keep in mind is the difference between protocol coins and utility tokens. A protocol coin is a cryptocurrency based off a blockchain that enables developers to build decentralized applications on its platform. Think Ethereum, NEO, EOS, Cardano or Qtum. Utility tokens are issued by the applications built on these blockchains. For example, MakerDAO is built on top of the Ethereum blockchain and SpaceChain is built on Qtum. The value of protocol coins is determined by whether developers want to build their applications on their blockchain ecosystem and eventually how popular these applications will become, so it’s a codependency. The value of utility tokens is based on if people will actually use these applications. Because of the current state of blockchain technology and it being very new, these tokens are a bit risky. But, with risk comes great upside potential. Many believe blockchain technology will revolutionize the world and the catalyst that will make this happen will be decentralized applications. So when assessing the value of the differences in crypto think about how much risk you’re willing to take.

Business Deals

Partnerships formed between a blockchain company and a multinational corporation or national government can be a lead to possible mass adoption in the future. The corporate world is known to always want a hand in new and popular emerging markets and the interest in the blockchain industry is huge. With massive investments, Amazon, Microsoft, IBM, Alibaba and many more have entered the crypto market. Even national governments are pumping money in the industry to stimulate the economy. These partnerships can bridge the gap between blockchain and the masses and if a blockchain company secures a deal with a big company or government it can be of great value later on.

The technology itself

It seems as though nobody cares much about the actual technology behind a blockchain company when investing. Some blockchain platforms have a market cap of over a billion dollars without even having a working product. Almost all the blockchain ecosystems today have issues with scalability and that seems to be the main focus of development in the industry. To advance the process of mass adoption, there has to be a solution to this problem. Thankfully, there are a lot of advanced blockchain 3.0 platforms who have made strides in coming up with concepts to address the issues of network congestion, TPS and high speed connections. The competition in this area is worth keeping an eye on since the one coming out on top can be the trailblazer for the whole industry.

Demand

Doing research on crypto investments is a lot different from the research you would do on stocks. But don’t think being tech savvy gives you an edge in finding the coin/token that will outperform. The financial fundamentals still count and the only thing that can conclude whether a cryptocurrency will beat the rest is simple: demand. Despite what most people believe, cryptocurrencies have an actual use case and can be used for more than trading (unless it’s a security token in which case you should stay far away). A truly great crypto has a real purpose and can be used for something. A great example is Steem since you need it to function on the Steemit platform.

One more important indicator is the target group of the crypto. Is there a need for the service it’s providing? Is the crypto targeting another emerging market like AI for example? Are there a lot of competitors in its field? If so, what sets them apart from the competitors?
Even though competition is important, is doesn’t have to be a bad thing. A lot of organizations with the same concept can coexist in todays global economy. China uses Baidu, the West uses Google and just like that the West can utilize Ethereum while China has NEO.

With that being said, I hope these posts have been of value to some when researching your next investment. I’m currently doing the same so i decided to do these segments on my Steemit account. I’m curious to know if you guys have some good ideas.

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