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icodogio · 5 years

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How To Evaluate Cryptocurrencies

Looking to get involved with a project that has caught your eye? How can you be sure that the technical jargon really cuts the mustard and isn’t just some mumbo jumbo put together with fancy marketing and nothing but vapors under the hood? Well, there are some acid tests you can apply when sizing up projects and we’ll give you the rundown in this guide; so that you can avoid getting pranked with a heavy bag of excrement and separate wheat from the chaff when assessing the market and what constitutes a probable bid.

…Is It Gonna Bang Though?

The first concept you must understand when sizing up cryptocurrency projects is they are ten a penny and in 2017 due to the parabolic bull run, even more frequently appearing on the scene in a seemingly never-ending onslaught. In short – everyone is playing bullshit bingo in crypto.

Just try and see how many projects feature essentially exactly the same thing, just with different colors and branding and maybe a few extra bells and whistles, at its core mostly all projects barely differentiate themselves from one another and purely offer buzzwords or conceptual ideas whilst working on the backbone of another successful project in the interim.

The Core Pillars of any cryptocurrency

1. Speed – It will be sold as fast, faster than X and able to handle more TPS (transactions per second) than Visa.

2. Accessibility – After speed, it’s easy to use and literally ‘just works’ the software is super simple and anyone case use it. Or can they?

3. Reliability – It’s secure. More Secure than Fort Knox according to the marketing guff. It’s unbreakable and cannot be hacked. This is as an important pillar as the other two. Of course, if you can double spend or attack a network it’s not going to ever work. So it must be reliable without a shadow of a doubt.

After these three, a niche will be added to the cryptocurrency. This could be literally anything from logistics to file storage to tokens in a virtual world. One must ask himself, that’s all good and decent but why not just use Bitcoin, Ethereum or Ripple for that part? Why would this specific use case token or coin be a success, what is the unique selling point? What is the call to action? Why would people use this over an existing large cap project?

If you cannot come up with a sizable argument, one that warrants the usage. It’s highly unlikely the coin is going to be a big success. You can argue that it just won’t be a banger. It will most likely be a dud, that fades and fizzles out after the hopium of expectations has evaporated and left a market full of bag holders who want to jump on the next greatest thing. Be careful of joining a train of investors just because of hype. Give it a fair evaluation.

SWOT Analysis

The strength, weaknesses, opportunities, and threats is a business planning methodology that goes back to the basics. Any entrepreneur writing a business plan has had to deal with their SWOT analysis and why not do our own on projects we’re going to invest our hard earned coins into?

Take a pen and paper, draw a cross to quarter the page and write out your SWOT for the project (check the picture below). What are the key strengths? What are the weaknesses, the opportunities, and threats to the business? Size them up, the pros and cons. If you find it is really not making sense by this point, you sir have found a pile of excrement.

Often projects do not hold any value and are purely marketing hype born from the multi-level marketing swamp that is slowly being drained. Avoid such projects like the plague don’t give power to their cause.

Repository Activity

So you have a project that passes the shit test. You have done some appraisal and found that after looking at it under a SWOT analysis and pragmatically comparing it’s pillars – this diamond in the rough actually holds water and shows a lot of promise. It has an X factor about it, something that just oozes success. You are really sold on the concept

…but what about the team?

Don’t take some marketing spiel with nice profile pictures at face value. That’s just idiocy. I can go and get a wall of temps and make a whole hierarchy for a penny. Why should that make you believe it. So you see a wall of faces, does that mean they cannot all be dullards? Is your money really safe?

Remember when you deposit your ETH into an ICO, there are really no guarantees that the team is going to use your money to finish the project. You wish they will, you assume they will. But how can you know for certain, once you send that transaction that they will honor you as you have to them? Do you know who they are, I mean really? Looking at a marketing website, you know a sales face.

Let’s look at how they actually work to understand the project. Load up their github and check the commits coming in. Go through each developers profiles and see what is going on. Forget Linkedin, that’s just floss. Get to the underbelly, look inside the guts of the machine. If you see hundreds of commits, loads of code being updated and a active community with issues being closed, a slack chat or similar (maybe discord, telegram or such) that you can engage and have a nice conversation with the team. You should mark this project a success.

Because it’s impossible to fake that. You can fake marketing, you can buy views, you can write all about your project in the best possible light. But you cannot fake code commits, you cannot fake bug fixes and updates with the public. So for me, the repository is the heart of the project.

You could skip even the first SWOT step and just go straight for a project’s repository really, but I wanted to explain how important the methodology is to get the direction of a project and it’s the viability of market success first. Because despite developers being active, it doesn’t mean they are working on a great project necessarily. They may just be hired to work at the time of marketing, and once ICO is completed, fizzle out and stop updating the project.

Get to know the Team

Get to know the team, find out who are the key developers. See if they have socials you can follow, and just get involved. Talk with them, see what they zeitgeist is inside that team’s ecosystem and where it’s going. If you feel the fire in their bellies and know the hunger is there for success, you can sleep soundly knowing the team is working hard to finish the project and your investment will grow.

If you cannot vouch for that, and after looking for development work you find very little to none. Again you have found a real shit coin. No matter what the fresh-faced marketing messiah has written (who very probably has a long LinkedIn title/twitter bio mentioning buzzwords like serial entrepreneur/crypto god / MLM marketing pro/blockchain expert / disruptive tech expert / fintech disruptor / ico consultant, you know he’s full of it) just look for the actual code.

Because after all…“Show me the commits, don’t show me promises.”

is the only real-world test for these things. I solid project will hold up to this scrutiny.

Let Me Have a Test Drive

So you managed to get all this way, the project is gonna bang. The SWOT is on point. You are sure they are not a bunch of cretins at the helm and you are ready to open that trusty wallet and dip your toe into the market. You are going to invest, but how much?

Well before you even think about putting a nice chunk of change into this thing, let’s just give it a test run. Go and buy a $10 worth of the crypto and give it a little play. Send it to your friend, send it to yourself, see how it works. Does the chain actually have mining power? How long does this transaction take to clear? Is the wallet really buggy.

Be completely critical, even hypercritical of the project. Because it’s going to get the same hard testing in the real world when someone who has no involvement, no investment and is just a an end user who is using it for the first time – because of the amazing world changes claims it made on its whitepaper has finally come to light and its adoption has become mainstream.

If the experience is really shabby and you are saying what the heck a few times. It’s safe to say

…you have found another dud

And many projects have their ups and downs so make sure to check back later if you feel it was just a bad day, or the network was having upgrades. Don’t just do one test, check it over a period of a few weeks and see how the network is behaving. Try the mobile wallets, and exchanges it is listed on.

Keeping Liquid

The project must be liquid, there must be a buyer when you are selling. You cannot contemplate holding a million tokens of some project if there is no volume –

…who are you going to sell to?

Be super skeptical of projects that have no liquidity and promise the earth. If no one is trading, how are you going to get price appreciation? Markets with low liquidity are highly risky because if you want to exit the market and cash out, and you have no buyers. The price will quickly fall to whoever wishes to make a bid.

Say you buy at $1 because you hear the project is going places, you did all that boring checks I mentioned prior and you are sure this project is not a shit coin. You buy $10k of the token. After a week the token is trading at $0.70, so you double down and get some more, another $10k to the investment. But a week later, the volume is non-existent and after that sponsored promotion dried up, no one is trading the token. Quickly bids start to fall down towards $0.10.

At this point, you have lost over half of your investment. Nearly all of it is gone unless you are a very optimistic person with a high tolerance to risk, you probably don’t want to look at the number. So you wait for a better day. Let’s hope that day comes. Do you want to just be in the land of hope and hope alone, waiting for that magical day when people find your project and decide to start pumping the price up and buying it like there was no tomorrow? Sounds like quite a dicey bet now.

Maybe it would have been better to buy a solid company with earning reports that was traded on the regulated stock markets. But no, you want that growth, you want that X factor this project is alluring too.

…So you continue to hold.

After 6 months the project is delisted from several exchanges and trading at $0.05 with extremely low volume. You bite the bullet and try to sell some of your stacks, but you cannot find a bidder and the price keeps falling away. There is no reason why this could not happen to even a good project that passed SWOT analysis and holds water because due to many outside factors there can be all kinds of bearish sentiment thrown into the mix and people decide they don’t want to invest in the project.

So even when you have found good plays that you really want to get involved in, don’t get comfortable. Don’t marry any trade. There is no guarantee on what the weather will be tomorrow. You might be sure it’s not going to rain, arrive at the beach and it’s a torrential downpour. Unless you can rule out all possible bearish factors, with real life stability ensuring action such as buybacks by the managing team – there is no way to ensure the price of a crypto.

Even the biggest cap coins can shed double-digit percentage losses in matters of hours, what makes you think that this new shiny coin you have heard all about is going to be any stronger?

Trading Pure Alpha

There are fleeting chances for alpha in the cryptomarket, meaning coins which move independently of the pack of large caps such as BTC, ETH, and XRP. Finding that alpha and riding it will be highly profitable, but it’s not a sure thing and moves in an agile manner. You will find coins often run up 5% or 10% in a day before reversing those gains only a week later.

Don’t get caught holding the bag on the wrong side of the trade. Do your own research and know what you are buying by following the steps we outlined prior and using pragmatic thought when entering a market. Don’t just follow the chat and Twitter, use common sense. This way you will never find yourself panic buying, or selling again.

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