Why most Cryptocurrencies fail.
The most underlying question in investing into cryptocurrency is why do they fail? Or what value do they hold? The answer is for most coins/tokens, is none. While most of the crypto community will fight this theory to the death, we must be honest with investments and know if a company is a financially stable entity or is just another money maker trying to capitalize on the hip, new, investment wave. Both can be used and traded accordingly for the investor or day trader, but this also leads to the “Wild west theory” in the trading atmosphere. This is the uncontrollable and unregulated trading atmosphere that leads tweets from a billionaire to shape the entire market (follow doge coin)
If we look and treat crypto trading like the stock market it intends to rival, then what is the under lying value of most of the companies? Do they have a product? What is the cash flow for the business? What happens to the funds from the offering to the public (ICO, IPO, distribution of coins etc.) to the end of the coin life? How are these companies planning on funding themselves and paying staff when the initial funds run out? The answer is investors, for most coins things go one of two ways, either the staff is paid in the cryptocurrency they are representing to attain funds for services, (which they then sell to the to market) or the company sells coins to the market to cover costs for operating. Either way the major problem comes down to is the company a cash positive business.
A simple explanation of this is, what does the company sell? How much do they sell it for? What are the operating costs for the business? Or a simplified Profit and loss calculator will do for this also. Most of the crypto market has no product or business model, mostly because the working business model for cryptocurrency companies is still being figured out. Having worked with multiple crypto companies this seem to always be the breaking point in the business. The coin is there, the distribution is setup, blockchain technology is done and operating, so everything seems good, but now how does the company turn a profit? In 2017 and still true to some extent in 2021 most funding and investing are built on promises and releases of new tech and what the tech is hoping to accomplish.
Let us describe this another way, if your favorite cryptocurrency company were going onto Shark Tank what would they pitch? How would they convince people this company is worth investing? How long would an ROI or return of investment take for someone investing into this company? While not all coins are used for these purposes it is a great way to think about the use case, the availability, and the niche market this crypto is trying to break into and why it is even needed if at all. A lot of good is coming from the crypto industry but it seems the tech guys are still not connecting with the business guys. It is the Chef in the restaurant who does not want to sell a plate off food until it is perfect vs. the owner who wants to sell the food to keep the lights on so they chef can create the perfect plate.
What does this mean for the market? While there are still millions of new coins, tokens, and platforms showing up daily into the market this boils down to some of the basics. Always do your own research, look at companies who have a proven track record and are creating the next wave of technology to be implemented into the world where blockchain technology is needed. Follow companies who made it through the last bear market and companies who you believe will make it through the next one.
Not financial advice and Trade Safe,
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