These are the essential questions you need to ask before investing in a particular cryptocurrency.
As we see crypto markets slowly show signs of recovery from a cold crypto winter, many traders/investors are coming back to the market to chase the yield again. New York Blockchain Week is around the corner and we should see which crypto-related companies were able to not only survive, but actually deliver on their promises of tech development. In this article, I will discuss critical key points for traders/investors to consider when deciding on potential opportunities. My goal is to provide more food for thought when it comes to picking your positions for 2019. I want to be clear, this article is not investment advice. All the information presented here is strictly an opinion of my own and for informational purposes only.
Throughout my time at ICO Alert, I’ve performed more than a dozen deep dives into projects and published reports that ask essential questions about their ambitious goals. Some of them are still developing, and others might be shutting down. It was always interesting for me to see some projects omit the answers for specific questions because it doesn’t fit their PR agenda. I wonder how they are doing right now? My focus was to read the whitepaper, verify team members, see their community and, in some cases, use unanswered questions that were brought up by the community to compile my questions to the CEO of that project. In the end, the goal was to provide vital information and answers to questions that hit essential fundamental elements necessary to execute in that sector successfully. Some of my favorite industries I focused on the most include exchanges, financial services, and trading platforms. Given my experience, I found that I could add the most value to readers in that sector.
There are many different approaches to make educated decisions, but we will focus on fundamentals for now. Next time, we'll cover price action and technical analyses. Fundamental evaluation involves the strength of a team, strategic partnerships, mainnet launches, etc.
The first step of this should always be reading the whitepaper. As you first dive into the plan on paper, you can generally tell if the team is focusing on attracting a sophisticated crypto community or traditional VC investors that have little knowledge about the industry.
For example, if a whitepaper starts with the history of Bitcoin and how decentralization will change our lives in the future, the focus is towards educating potential investors about the overall industry and how their project fits in it. On the other hand, if the whitepaper dives straight into explaining what their startup is and how it will further advance that particular sector in our industry, the focus is towards VCs, funds, and investors that already have a pulse on the market. As you go through their whitepaper, write down your questions. If some of your questions are not answered by the end, use them when you interact with community admins to get more answers.
I’ve seen a significant number of projects that would say that they will grow their user base in a particular sector that is worth trillions of dollars but does not outline the plan on how to do it. I know what you're thinking, "Who would give away their strategy?"
Well, if you're trying to raise millions, potential institutional investors will need to see this information before they put any money in. This is where NDAs get exchanged, and sensitive information is shared. Always take an extra step to verify partnerships and the team behind the startup.
Here are some of my core questions that apply to a wide range of crypto startups in different sectors:
What is your strategy for growing the user base? What is the context of the industry as a whole and who is the target audience?
What are some of the key features that will bring these traders to your project instead of others in the same sector?
What are some of your competitors in this sector and what strengths and weaknesses does your project have over them?
Regulations on cryptocurrencies and ICOs\IEOs\STOs are big news these days. Are you planning to be regulated by any specific entities? How do you plan on supporting users/investors from countries with strict regulations on crypto trading?
What are some of the major companies that you think will benefit from your technology? Do you have any planned partnerships you would like to discuss?
What are some of the risks you see in regards to scalability with the network you picked (Etherium, EOS, TRON etc.)? If the project encounters transaction speed issues, high fees, etc., would the team be open to moving to another blockchain?
If you are raising capital using crypto, what are the lockup periods for the team and how will you hedge your capital exposure against market price volatility? (It's fascinating how many projects failed because they never hedged their ETH exposure.)
How do you ensure that your platform is easy to use for a novice crypto user?
If your token will be trading on an exchange, how do you make sure that there is enough liquidity for users/traders to buy/sell your token?
There are lots of other vital questions, and most of them are based explicitly on a project. However, my goal is to help you understand the thought process behind doing this evaluation. The questions above should give you a base start, and you can go from there. Ideally, you should be well-versed in the sector that this startup is trying to penetrate. If that's not the case, reach out to existing professionals in that sector and learn more about the current market state. For example, if you are evaluating a startup that's trying to penetrate the logistics sector, talk to professionals in that industry to see if this tech is even needed or if they are struggling with the problems that this project is trying to fix.
Big things happen quick and generally fly under the radar. If you can spot an opportunity early enough through your due diligence, it can be highly rewarding. I’m excited to see old and new players in this industry that will attend New York Blockchain Week in May - I'll post a recap after and also share my opinion about the themes I'm noticing in this market.