As investors, the only thing we do is try to pick the winning investments and do our best to avoid the losing ones. In this article, we will help you understand how to value cryptocurrency.
As you might be aware, corporate analysis and securities analysis are independent academic fields. You can go on to specialize in the field of financial and economic analysis by mastering the established metrics for understanding and evaluating economies, companies, and commodities, among others.
However, when it comes to cryptocurrencies, a fundamentally different investable asset class, there isn’t a body of academic work to learn and simply implement. So as cryptocurrencies investors, we have to apply analytical metrics with a bit of nuance.
So let’s look at some of the ways we can evaluate cryptocurrencies and position ourselves in a way to profit from the future growth of cryptocurrencies.
How to Value Cryptocurrency
As mentioned earlier, we can’t simply use the same methodologies used for real estate or stocks to evaluate cryptocurrencies. So let’s go over some of the key metrics you can analyze to find to best possible returns from cryptocurrencies.
There are hundreds of different cryptocurrencies currently listed on various exchanges. But you will notice that most of these listings are trying to ride the overwhelming popularity of highly successful cryptocurrencies such as bitcoin, ethereum, and ripple.
The most important thing you should look for in a cryptocurrency is if it offers something new. Ask yourself, can this cryptocurrency solve a problem? Can it help improve some of the pre-existing processes? Will it allow us to save resources and make us more efficient?
For example, ethereum is not really a currency. It is an independent platform for self-evaluation and self-executing digital contracts. It has the potential to change how we form contractual obligations and how we resolve contractual disputes. This is why etherium is currently trading above $1,000, representing gains of over 15,000% in just the previous year alone.
Similarly, ripple is another cryptocurrency with immense potential. Again, it is not a simple means of exchange or store of value. Instead, it is a complete mechanism for international clearing for financial and non-financial transactions. It has the potential for revolutionizing how the trillion dollar clearing industry works.
Is there Potential for Mass Adoption?
You can find the best investment in the world and still not be able to make money if no one knows about it. It won’t matter if a cryptocurrency has a distinct real-world application if its application is limited to a niche market.
Namecoin is the best example of this. NMC is currently trading around $4 a piece despite being in existence since 2011. The cryptocurrency allows us to create decentralized censorship-resistant domains in the form of .bit domains. However, since most people don’t create their own websites, it is no doubt a niche market that is competing with an already existing and established market for domains.
This is why you should look for potential for mass adoption along with the ability to offer a real-world practical application.
White Paper and Roadmap
A project’s white paper is the single most important piece of document that is produced by its development team. It will allow you to understand what the developers are trying to achieve as well as the roadmap for its future development.
When examining a whitepaper, you want to approach the document with a venture capitalist mindset. You want to analyze a blockchain the way VCs evaluate startups. Don’t think of a white paper as a final product but as the starting point of a journey. You don’t know where the journey will take you, but you should understand the general direction and if you’re willing to go down that route.
Partnerships and Exchanges
Collaboration is a vital element of success. Always look at partnerships that are being developed by the development team. First, you have exchanges. Cryptocurrencies exchanges play a huge role in legitimizing cryptocurrencies. If a small-cap altcoin is listed on a major exchange, it will automatically get attention from major cryptocurrencies investors.
Moreover, partnerships are not limited to just exchanges. For example, ConsenSys is an amazing example of a blockchain firm partnering with government agencies to improve its viability and acceptance. Ripple is by far the most successful cryptocurrency to foster corporate partnerships. It has a network of partnerships involving American Express, UBS, RBC, Standard Chartered and other big names.
If you’re a long-term investor, then you should limit your investments to platform-based cryptocurrencies. Bitcoin and ethereum are platform-based blockchains, and other altcoins are based on them.
For example, litecoin, a successful altcoin, is a bitcoin-derived blockchain. It doesn’t offer anything that bitcoin doesn’t. All it does is offer a few minor feature such as faster confirmation times. Hence, these cryptocurrencies are called feature cryptocurrencies.
Crypto Investing Pro
If you’re new to the world of cryptocurrencies, it is always advisable to learn before you invest any of your hard-earned savings. Investing is, after all, a risky proposition, one that should be undertaken after considerable due-diligence. Hence, it is important to properly understand how to find the winners and avoid the losers.
If you think you can benefit from a structured learning environment instead of randomly reading articles over the internet, you should definitely consider checking out Crypto Investing Pro. It is a one-stop-shop for learning everything you need to about cryptocurrencies.
For example, it will not only teach you to invest and trade cryptocurrencies, but it will also help you understand how to properly store your cryptocurrencies to avoid being a victim of a hack. It will also teach you the importance of diversification in the world of cryptocurrencies.
We are not suggesting that you can’t learn from reading articles over the internet. But you would agree that a structured and systematic way to learning is better than haphazardly stumbling over the internet for information you think you might need, right? Well, you should definitely check out Crypto Investing Pro to learn how to value cryptocurrency if nothing else.
It really is difficult to earn and save enough to be able to invest properly. Yes, with cryptocurrencies, you can even invest a $100. But your gains would be limited to what you invest. This is particularly why it is so important that you don’t invest your money without properly understanding the basic mechanisms of investing such as how risk-management works.
Hopefully, you’ve understood, at least, a bit about how to evaluate cryptocurrencies to find investments that create real value. If you invest in something that truly creates value, you will be rewarded financially. If not in the short-term then definitely in the long-run.