Value Investing: How to Really Invest in Cryptos
Value Investing: How to Really Invest in Cryptocurrency
Having invested in cryptocurrency for quite some time, I am frightened by how much people invest in something they know nothing about. You can read in forums and chat boxes questions like "what should I invest in?" These questions are promptly answered by people saying "Go buy XXX, the price will skyrocket to the moon!" This totally baseless statement that is backed-up by zero facts, promptly gets the other party to invest his life savings on XXX. A lot of people lose money because of this. Instead of doing their research, they listen to someone else hyping an investment. They don't even know the credentials of the person advising them.
I am not an expert by any means, and I will not advise you on what you should or should not invest in. Instead, I will be listing down the steps needed in value investing. Value investing means putting your money in something you believe in to be valuable because of your research and due diligence, and not because the market says it is.
Here are the key areas you have to research on before you make an investment:
1. Qualifications and Reputation of the Developers
Check out a cryptocurrency's website and go to their "Team Page" or "Developer Page." Find out about the experience and skills of the team involved. Research their past projects and performance. But don't rely on what they state in their website alone, cross-check these facts to know for sure.
It should be an immediate red flag if their is zero information regarding their team members.
2. Purpose of the Cryptocurrency
What problem are they trying to solve? Is it an important, world-changing problem or are they merely solving why bread always falls on the buttered side?
In relation to this, find out how their cryptocurrency is solving this problem. This is usually stated in their whitepaper. This solution should be clearly stated in a 1 to 2 sentence explanation. You should have second thoughts if the whitepaper merely bombards you with jargon and technicalities that not even Einstein could understand.
3. Their Competitive Advantage
There are 2 categories of competitive advantage, internal and external. Internal advantages include their team members, amount of capital raised, advisers on board, unique technology, etc. External advantages on the other hand refers to their geo-location, tax and other relevant laws in their country of operation.
4. Roadmap
A roadmap is essentially a timeline of their goals and objectives. It can expand anywhere between a month to a couple of years. When analyzing their roadmap ask yourself if these steps contribute to solving the world-changing problem they are trying to address. Again, if they can't explain their future plans without bombarding you with useless jargon, you should have second thoughts.
5. Actual Use for the Token/Coin
A cryptocurrency's token will only have intrinsic value if it has a purpose in itself. Ethereum for example, is needed for an Ethereum smart contract to be executed. If the token has no special function and merely acts as a company's stock, it is running on pure hype and speculation. These are the coins that don't last the test of time.
These are the 5 key areas you have to research on before you make an investment in the crypto world. Remember, don't rely on others' advice without doing your own due diligence.
Safe trading to all!
All those steps to follow are fine. Still, even after thorough research of the token and the people behind them. You could have a state-of-art marketing scam behind it. It's sometimes pure luck to find a token worth investing.
Yeah you're right. But it does mitigate the risk. One advice I would give is to join a group of investors. Those that do research and prohibit any form of hyping whatsoever. The best group I found so far is the coinfund slack group.
This is how I invest in Crypto
On top of this I have about 120 STEEM
Many crypto, much wow!
I would suggest that you transfer your cryptos to your own wallet unless you trade them short term.
I'm new to the Crypto world but I find myself being an idiot and buying up alt coins because a few people on a forum said so. I'll take your advice and be a little more cautious, thanks.